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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1998
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 000-21731
HIGHWOODS REALTY 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 nonaffiliates 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 19, 1999 was $205,858,115.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement of Highwoods Properties, Inc. in connection
with its Annual Meeting of Shareholders to be held June 2, 1999 are incorporated
by reference in Part III Items 10, 11 and 13.
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<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item No. Page No.
- ---------- ---------
<S> <C> <C>
PART I
1. Business .................................................................. 3
2. Properties ................................................................ 10
3. Legal Proceedings ......................................................... 15
4. Submission of Matters to a Vote of Security Holders ....................... 15
X. Executive Officers of the Registrant ...................................... 16
PART II
5. Market for Registrant's Equity and Related Security Holder Matters ........ 17
6. Selected Financial Data ................................................... 17
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations ............................................................. 19
7A. Quantitative and Qualitative Disclosures About Market Risk ................ 28
8. Financial Statements and Supplementary Data ............................... 29
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...................................................... 30
PART III
10. Directors and Executive Officers of the Registrant ........................ 30
11. Executive Compensation .................................................... 30
12. Security Ownership of Certain Beneficial Owners and Management ............ 30
13. Certain Relationships and Related Transactions ............................ 30
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........... 31
</TABLE>
2
<PAGE>
PART I
We refer to (1) Highwoods Properties, Inc. as the "Company," (2) Highwoods
Realty Limited Partnership (formerly Highwoods/Forsyth Limited Partnership) as
the "Operating Partnership," (3) the Company's common stock as "Common Stock"
and (4) the Operating Partnership's common partnership interests as "Common
Units."
ITEM 1. BUSINESS
General
The Operating Partnership is managed by its general partner, the Company, a
self-administered and self-managed equity REIT that began operations through a
predecessor in 1978. Originally founded to oversee the development, leasing and
management of the 201-acre Highwoods Office Center in Raleigh, North Carolina,
we have since evolved into one of the largest owners and operators of surburban
office, industrial and retail properties in the southeastern and midwestern
United States. At December 31, 1998, we
o owned or had a majority interest in 658 in-service office, industrial and
retail properties, encompassing approximately 44.6 million rentable square
feet and 2,325 apartment units;
o owned an interest (50% or less) in 18 in-service office and industrial
properties, encompassing approximately 1.6 million rentable square feet;
o owned 1,417 acres (and had agreed to purchase an additional 626 acres) of
undeveloped land suitable for future development; and
o were developing an additional 59 properties, which will encompass
approximately 6.9 million rentable square feet.
The Company conducts substantially all of its activities through, and
substantially all of its interests in the properties are held directly or
indirectly by, the Operating Partnership. The Company is the sole general
partner of the Operating Partnership. At December 31, 1998, the Company owned
86% of the Common Units in the Operating Partnership. Limited partners
(including certain officers and directors of the Company) own the remaining
Common Units. Holders of Common Units may redeem them for the cash value of one
share of the Company's Common Stock or, at the Company's option, one share
(subject to certain adjustments) of Common Stock.
We also provide leasing, property management, real estate development,
construction and miscellaneous services for our properties as well as for third
parties. We conduct our third-party, fee-based services through Highwoods
Services, Inc., a subsidiary of the Operating Partnership, and through
Highwoods/Tennessee Properties, Inc., a wholly owned subsidiary of the Company.
The Company was incorporated in Maryland in 1994. The Operating Partnership
was formed in North Carolina in 1994. Our executive offices are located at 3100
Smoketree Court, Suite 600, Raleigh, North Carolina 27604, and our telephone
number is (919) 872-4924. We maintain offices in each of our
primary markets.
Operating Strategy
Diversification. Since our formation in 1994, we have significantly reduced
our dependence on any particular market, property type or tenant. For example,
our in-service portfolio has expanded from 41 North Carolina office properties
(40 of which were in the Research Triangle area of North Carolina) to 676
office, industrial and retail properties and 2,325 apartment units in 20 markets
in the Southeast and Midwest.
Development and Acquisition Opportunities. We generally seek to engage in
the development of office and industrial projects in our existing geographic
markets, primarily in suburban business parks. We intend to focus our
development efforts on build-to-suit projects and projects where we have
3
<PAGE>
identified sufficient demand. In build-to-suit development, the building is
significantly pre-leased to one or more tenants prior to construction.
Build-to-suit projects often foster strong long-term relationships with tenants,
creating future development opportunities as the facility needs of tenants
increase. We believe our commercially zoned and unencumbered development land in
existing business parks is an advantage we have over many of our competitors in
pursuing development opportunities.
We also seek to acquire selective suburban office and industrial properties
in our existing geographic markets at prices below replacement cost that offer
attractive returns. These would include acquisitions of underperforming, high
quality properties in our existing markets that offer us opportunities to
improve such properties' operating performance.
Managed Growth Strategy. Our strategy has been to focus our real estate
activities in markets where we believe our extensive local knowledge gives us a
competitive advantage over other real estate developers and operators. As we
expanded into new markets, we 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. Approximately three-quarters
of our properties were either developed by us or are managed on a day-to-day
basis by personnel who previously managed, leased and/or developed those
properties before their acquisition by us.
Our development and acquisition activities also benefit from our local
market presence and knowledge. Our property-level officers have on average more
than 20 years of real estate experience in their respective markets. Because of
this experience, we are in a better position to evaluate acquisition and
development opportunities. In addition, our relationships with our tenants and
those tenants at properties for which we conduct third-party, fee-based services
may lead to development projects when these tenants seek new space.
Efficient, Customer Service-Oriented Organization. We provide a complete
line of real estate services to our tenants and third parties. We believe that
our in-house development, acquisition, construction management, leasing and
management services allow us to respond to the many demands of our existing and
potential tenant base. We provide our tenants cost-effective services, such as
build-to-suit construction and space modification, including tenant improvements
and expansions. In addition, the breadth of our capabilities and resources
provides us with market information not generally available. We believe that the
operating efficiencies achieved through our fully integrated organization also
provide a competitive advantage in setting our lease rates and pricing other
services.
Flexible and Conservative Capital Structure. We are committed to
maintaining a flexible and conservative capital structure that: (1) allows
growth through development and acquisition opportunities; (2) promotes future
earnings growth; and (3) provides access to the private and public equity and
debt markets on favorable terms. Accordingly, we expect to meet our long-term
liquidity requirements, including funding our existing and future development
activity, through a combination of:
o borrowings under our unsecured revolving credit facility;
o the issuance of unsecured debt securities;
o borrowings of secured debt;
o the issuance of equity securities by both the Company and the Operating
Partnership;
o the selective disposition of non-core assets; and
o the sale or contribution of certain of our wholly owned properties to
strategic joint ventures to be formed with selected institutional
investors.
4
<PAGE>
Recent Developments
Merger and Acquisition Activity. The following table summarizes the
mergers and acquisitions completed during 1998:
<TABLE>
<CAPTION>
Acquisition
Building Closing Rentable Initial
Property Location Type (1) Date Square Feet Cost
- ---------------------------- -------------------------- ---------- ------------ ------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Stony Point Richmond O 01/21/98 117,000 $ 12,750
Anchor Glass Tampa O 01/29/98 101,000 12,150
Garcia Portfolio Tampa O 02/04/98 1,233,000 108,000
Alston & Bird Charlotte O 02/13/98 45,000 7,650
215 South Monroe Tallahassee O 02/19/98 158,000 19,500
Sunset Station Miami O 03/02/98 64,000 8,250
Landmark I & II Orlando O 03/18/98 456,000 70,000
Triad Crow Portfolio Atlanta O 03/26/98 471,000 63,930
University Research Center Charlotte O 03/27/98 148,000 16,050
BTI Corporate Center Research Triangle O 03/27/98 163,000 19,950
4601 Park Square Charlotte O 04/09/98 120,000 10,376
Merrill Lynch Building Baltimore O 04/14/98 137,000 14,196
Clark Building Baltimore O 04/16/98 110,000 9,897
Harrison Park Ft. Lauderdale O/I 04/17/98 643,000 34,000
770 Pelham Road Greenville O 04/24/98 39,000 3,482
4000 Old Court Road Baltimore O 04/28/98 42,000 6,024
Mallard Creek Charlotte O 05/13/98 143,000 12,500
Bayshore Tampa O 05/21/98 84,000 12,500
Shelton Portfolio Piedmont Triad/Charlotte O/I 05/22/98 4,583,000 162,000
Idlewild Tampa O 07/01/98 77,000 4,473
J.C. Nichols Portfolio Kansas City/Des Moines O/I/R/M 07/13/98 5,700,000 544,000
Sandlake Orlando O 07/21/98 42,000 5,050
Horizon One Hollywood O 07/27/98 100,000 7,000
Countryside Place Clearwater O 07/30/98 54,000 4,500
Brandywine Tampa O/l 08/24/98 76,000 3,900
--------- ----------
14,906,000 $1,172,128
========== ==========
</TABLE>
- ----------
(1) O = Office
I = Industrial
R = Retail
M = Multifamily
J.C. Nichols Transaction. On July 13, 1998, we completed our previously
reported merger with J.C. Nichols Company, a Missouri real estate operating
company, pursuant to a merger agreement dated December 22, 1997 and amended on
April 29, 1998. Prior to consummation of the transaction, J.C. Nichols had been
subject to the information requirements of the Securities Exchange Act of 1934
and, in accordance therewith, filed reports and other information with the SEC.
As a result of the transaction, we own or have an ownership interest in 57
office, industrial and retail properties and 17 multifamily communities in the
Kansas City metropolitan area. Also as a result of the transaction, we have an
ownership interest in 22 office and industrial properties and one multifamily
community in the Des Moines, Iowa, area.
Under the terms of the merger agreement, the Company acquired all of the
outstanding common stock, $.01 par value, of J.C. Nichols. Under the merger
agreement, J.C. Nichols shareholders were entitled to receive either 2.03 shares
of the Company's Common Stock or $65 in cash for each share of J.C. Nichols
common stock. However, the merger agreement limited the aggregate cash payment
to J.C.
5
<PAGE>
Nichols shareholders to 40% of the total consideration. The exchange ratio
reflects the average closing price of the Company's Common Stock over the 20
trading days preceding the closing date of the transaction. The transaction was
valued at approximately $544 million and consisted of the issuance of
approximately 5.63 million shares of the Company's Common Stock, the assumption
of approximately $229 million of debt, the incurrence of approximately $15
million in transaction costs and a cash payment of approximately $120 million,
net of cash acquired of approximately $59 million.
Joint Venture and Disposition Activity
For a discussion of our joint venture and disposition activity, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Developments."
Development Activity
The following table summarizes the 19 development projects placed in
service during 1998:
Placed In Service
<TABLE>
<CAPTION>
Month
Building Placed Number of Rentable Initial
Name Location Type in Service Properties Square Feet Cost(1)
- ---------------------------- ------------------- ---------- ------------ ------------ ------------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Newpoint Place ............. Atlanta I Jan-98 1 119,000 $4,605
Rexwoods Center V .......... Research Triangle O Jan-98 1 60,000 7,251
Airport Center II .......... Richmond I Mar-98 1 72,000 3,274
Colonnade .................. Memphis O Apr-98 1 89,000 9,296
Harpeth On The
Green V .................. Nashville O Apr-98 1 65,000 6,228
Lakeview Ridge II .......... Nashville O Apr-98 1 61,000 5,854
Highwoods Five ............. Richmond O Apr-98 1 71,000 6,585
Air Park South
Warehouse I .............. Piedmont Triad I May-98 1 100,000 3,077
ClinTrials Research ........ Research Triangle O Jun-98 1 178,000 17,943
Markel-American ............ Richmond O Jun-98 1 106,000 10,386
RMIC ....................... Piedmont Triad O Jun-98 1 90,000 7,225
Southpointe ................ Nashville O Jun-98 1 104,000 9,616
Network Construction ....... Piedmont Triad O Jul-98 1 13,000 733
BB&T ....................... Greenville O Sep-98 1 71,000 5,338
2400 Century Center ........ Atlanta O Sep-98 1 135,000 14,921
Automatic Data
Processing ............... Baltimore O Oct-98 1 110,000 12,200
Sabal Pavilion Phase I ..... Tampa O Oct-98 1 121,000 8,609
Southwind Building C ....... Memphis O Dec-98 1 74,000 5,764
Hard Rock Cafe ............. Orlando O Dec-98 1 63,000 5,217
- ------- --------
Total ...................... 19 1,702,000 $144,122
== ========= ========
</TABLE>
- ----------
(1) Initial Cost includes estimated amounts required to complete the project,
including tenant improvement costs.
6
<PAGE>
We had 47 suburban office properties, 10 industrial properties and two
retail properties under development totaling 6.9 million rentable square feet of
office and industrial space at December 31, 1998. The following table summarizes
these development projects as of December 31, 1998:
In-process
<TABLE>
<CAPTION>
Rentable Estimated Cost at Pre-Leasing Estimated Estimated
Name Location Square Feet Costs 12/31/98 Percentage (1) Completion Stablization (2)
- ----------------------- ------------------- ------------- ----------- ---------- ---------------- ------------ -----------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Office:
Highwoods Center I
@ Tradeport Atlanta 45,000 $ 3,717 $ 1,610 100% 1Q99 1Q99
Highwoods Center II
@ Tradeport Atlanta 53,000 4,825 650 56 4Q99 2Q00
Peachtree Corner Atlanta 109,000 9,238 2,114 0 4Q99 3Q00
Highwoods I Baltimore 125,000 15,300 2,973 0 2Q99 4Q99
Mallard Creek V Charlotte 118,000 12,262 3,289 0 4Q99 4Q00
Parkway Plaza 11 Charlotte 32,000 2,600 1,946 58 1Q99 3Q99
Parkway Plaza 12 Charlotte 22,000 1,800 1,282 0 1Q99 4Q99
Parkway Plaza 14 Charlotte 90,000 7,690 1,834 53 2Q99 1Q00
Lakefront Plaza I Hampton Roads 76,000 7,477 2,977 20 2Q99 1Q00
Belfort Park C1 Jacksonville 54,000 4,830 1,028 0 3Q99 2Q00
Belfort Park C2 Jacksonville 31,000 2,730 907 0 3Q99 2Q00
Velencia Place Kansas City 241,000 34,020 6,814 41 1Q00 1Q00
Southwind Building D Memphis 64,000 6,800 1,918 20 2Q99 4Q99
Caterpillar Financial
Center Nashville 313,000 54,000 12,255 77 1Q00 2Q00
Lakeview Ridge III Nashville 131,000 13,100 6,813 88 2Q99 2Q99
Westwood South Nashville 125,000 13,530 5,345 53 3Q99 1Q00
C N A Maitland III Orlando 78,000 9,885 2,703 100 2Q99 2Q99
Capital Plaza Orlando 341,000 53,000 9,223 30 1Q00 4Q01
Concourse Center
One Piedmont Triad 86,000 8,400 3,781 25 2Q99 1Q00
3737 Glenwood
Avenue Research Triangle 107,000 16,700 5,287 56 3Q99 1Q00
4101 Research
Commons Research Triangle 73,000 9,311 1,691 35 3Q99 2Q00
Capital One Bldg 1 Richmond 124,000 13,728 395 100 2Q99 2Q99
Capital One Bldg 2 Richmond 46,000 4,752 -- 100 3Q99 3Q99
Capital One Bldg 3 Richmond 124,000 13,728 -- 100 4Q99 4Q99
Eastshore II Richmond 76,000 7,842 6,976 100 1Q99 2Q99
Highwoods Common Richmond 49,000 4,840 2,912 100 2Q99 2Q99
Stony Point II Richmond 133,000 13,881 8,700 35 2Q99 4Q99
Highwoods Square South Florida 93,000 12,500 7,266 42 1Q99 4Q99
Sportsline USA South Florida 80,000 10,000 2,576 100 3Q99 3Q99
Intermedia Building 1 Tampa 200,000 27,040 204 100 1Q00 1Q00
Intermedia Building 2 Tampa 30,000 4,056 39 100 1Q00 1Q00
Intermedia Building 3 Tampa 170,000 22,984 44 100 1Q00 1Q00
Intermedia Building 4 Tampa 200,000 29,219 -- 100 2Q00 2Q00
Intermedia Building 5 Tampa 200,000 29,219 -- 100 3Q01 3Q01
Interstate Corporate
Center(3) Tampa 325,000 15,600 14,862 90 1Q99 2Q99
Lakepoint II Tampa 225,000 34,106 3,060 52 4Q99 4Q00
------- -------- -------- ---
In-Process Office Total
or Weighted Average 4,389,000 $534,710 $123,474 63%
========= ======== ======== ===
</TABLE>
- ----------
(1) Includes the effect of letters of intent.
(2) We generally consider a development project to be stabilized upon the
earlier of the first date such project is at least 95%
occupied or one year from the date of completion.
(3) Redevelopment project.
7
<PAGE>
In-process continued
<TABLE>
<CAPTION>
Name Location
- ---------------------------------------------------- ----------------
<S> <C>
Industrial:
Bluegrass Lakes I Atlanta
Chastain III Atlanta
Newpoint II Atlanta
Air Park South
Warehouse VI Piedmont Triad
HIW Distribution
Center Richmond
In-Process Industrial Total
or Weighted Average
Retail:
Seville Square Kansas City
Valencia Place Kansas City
In-Process Retail Total
or Weighted Average
Total or Weighted Average
of all In-Process
Development Projects
- ----------
</TABLE>
(1) Includes the effect of letters of intent.
(2) We generally consider a development project to be stabilized upon the
earlier of the first date such project is at least 95%
occupied or one year from the date of completion.
<TABLE>
<CAPTION>
Rentable Estimated Cost at
Name Square Feet Costs 12/31/98
- ----------------------------------------------------- ------------- ----------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Industrial:
Bluegrass Lakes I 112,000 $ 4,700 $ 2,999
Chastain III 54,000 2,098 1,753
Newpoint II 131,000 5,167 1,767
Air Park South
Warehouse VI 189,000 8,000 5,537
HIW Distribution
Center 166,000 5,764 6,495
------- -------- --------
In-Process Industrial Total
or Weighted Average 652,000 $ 25,729 $ 18,551
======= ======== ========
Retail:
Seville Square 119,000 $ 32,100 $ 20,393
Valencia Place 81,000 14,362 --
------- -------- --------
In-Process Retail Total
or Weighted Average 200,000 $ 46,462 $ 20,393
======= ======== ========
Total or Weighted Average
of all In-Process
Development Projects 5,241,000 $606,901 $162,418
========= ======== ========
</TABLE>
- ----------
(1) Includes the effect of letters of intent.
(2) We generally consider a development project to be stabilized upon the
earlier of the first date such project is at least 95%
occupied or one year from the date of completion.
<TABLE>
Pre-Leasing Estimated
Name Percentage (1) Completion
- --------------------------------------- ---------------- ------------
(dollars in thousands)
<S> <C> <C>
Industrial:
Bluegrass Lakes I 100% 1Q99
Chastain III 100 4Q98
Newpoint II 27 3Q99
Air Park South Warehouse VI 100 1Q99
HIW Distribution Center 23 1Q99
---
In-Process Industrial Total or Weighted Average 66%
===
Retail:
Seville Square 75% 2Q99
Valencia Place 50 1Q00
---
In-Process Retail Totalor Weighted Average 65%
===
Total or Weighted Average of all In-Process
Development Projects 64%
===
</TABLE>
- ----------
(1) Includes the effect of letters of intent.
(2) We generally consider a development project to be stabilized upon the
earlier of the first date such project is at least 95%
occupied or one year from the date of completion.
<TABLE>
Estimated
Name Stablization (2)
- -------------------------------------------------- -----------------
(dollars in
thousands)
<S> <C>
Industrial:
Bluegrass Lakes I 1Q99
Chastain III 1Q99
Newpoint II 2Q00
Air Park South Warehouse IV 1Q99
HIW Distribution Center 4Q99
In-Process Industrial Total
or Weighted Average Retail:
Seville Square 3Q99
Valencia Place 1Q00
In-Process Retail Total or Weighted Average
Total or Weighted Average of all In-Process
Development Projects
- ----------
(1) Includes the effect of letters of intent.
(2) We generally consider a development project to be stabilized upon the
earlier of the first date such project is at least 95%
occupied or one year from the date of completion.
</TABLE>
Completed-Not Stabilized
Name Location
- -----------------------------------------------------------------
Office:
Ridgefield III Asheville
10 Glenlakes Atlanta
Patewood VI Greenville
Cool Springs I Nashville
C N A Maitland I Orlando
C N A Maitland II Orlando
Highwoods Centre Research Triangle
Overlook Research Triangle
Red Oak Research Triangle
Situs II Research Triangle
Highwoods Centre Hampton Roads
Completed-Not Stabilized Office
Total or Weighted Average
Industrial:
Chastain II Atlanta
Newpoint III Atlanta
Tradeport 1 Atlanta
Tradeport 2 Atlanta
Air Park South Warehouse II Piedmont Triad
Completed-Not Stabilized Industrial
Total or Weighted Average
Total or Weighted Average of
all Completed-Not Stabilized
Development Projects
Total or Weighted Average of
all Development Projects
- ----------
(1) Includes the effect of letters of intent.
(2) We generally consider a development project to be stabilized upon the
earlier of the first date such project is at
least 95% occupied or one year from the date of completion.
<TABLE>
<CAPTION>
Rentable Estimated Cost at
Name Square Feet Costs 12/31/98
- -------------------------------------------- ------------- ----------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Office:
Ridgefield III 57,000 $ 5,500 $ 4,870
10 Glenlakes 254,000 35,100 23,560
Patewood VI 107,000 11,400 10,203
Cool Springs I 153,000 16,800 13,778
C N A Maitland I 180,000 24,400 19,450
C N A Maitland II 50,000 4,950 4,670
Highwoods Centre 76,000 8,300 7,673
Overlook 97,000 10,500 8,070
Red Oak 65,000 6,000 4,125
Situs II 59,000 6,300 5,504
Highwoods Centre 98,000 9,925 7,473
------- -------- --------
Completed-Not Stabilized Office
Total or Weighted Average 1,196,000 $139,175 $109,376
========= ======== ========
Industrial:
Chastain II 67,000 2,602 2,502
Newpoint III 84,000 3,000 3,463
Tradeport 1 87,000 3,100 2,529
Tradeport 2 87,000 3,100 2,529
Air Park South Warehouse II 136,000 4,200 3,012
--------- -------- --------
Completed-Not Stabilized Industrial
Total or Weighted Average 461,000 $16,002 $ 14,035
======== ========
Total or Weighted Average of
all Completed-Not Stabilized
Development Projects 1,657,000 $155,177 $123,411
========= ======== ========
Total or Weighted Average of
all Development Projects 6,898,000 $762,078 $285,829
========= ======== ========
</TABLE>
- ----------
(1) Includes the effect of letters of intent.
(2) We generally consider a development project to be stabilized upon the
earlier of the first date such project is at
least 95% occupied or one year from the date of completion.
<TABLE>
<CAPTION>
Percent
leased/
Name Pre-leased (1) Completion
- ------------------------------------------------------ --------------- ------------
(dollars in thousands)
<S> <C> <C>
Office:
Ridgefield III 37% 3Q98
10 Glenlakes 75 4Q98
Patewood VI 92 3Q98
Cool Springs I 50 3Q98
C N A Maitland I 100 4Q98
C N A Maitland II 100 3Q98
Highwoods Centre 93 4Q98
Overlook 88 4Q98
Red Oak 75 4Q98
Situs II 77 3Q98
Highwoods Centre 50 4Q98
---
Completed-Not Stabilized Office
Total or Weighted Average 77%
===
Industrial:
Chastain II 100% 3Q98
Newpoint III 100 4Q98
Tradeport 1 71 3Q98
Tradeport 2 72 3Q98
Air Park South Warehouse II 100 4Q98
---
Completed-Not Stabilized Industrial
Total or Weighted Average 89%
===
Total or Weighted Average of
all Completed-Not Stabilized
Development Projects 80%
===
Total or Weighted Average of
all Development Projects 67%
===
</TABLE>
- ----------
(1) Includes the effect of letters of intent.
(2) We generally consider a development project to be stabilized upon the
earlier of the first date such project is at
least 95% occupied or one year from the date of completion.
<TABLE>
<CAPTION>
Estimated
Name Stablization (2)
- ------------------------------------------------------------ -----------------
(dollars in
thousands)
<S> <C>
Office:
Ridgefield III 4Q99
10 Glenlakes 4Q99
Patewood VI 1Q99
Cool Springs I 2Q99
C N A Maitland I 1Q99
C N A Maitland II 1Q99
Highwoods Centre 1Q99
Overlook 2Q99
Red Oak 2Q99
Situs II 2Q99
Highwoods Centre 4Q99
Completed-Not Stabilized Office
Total or Weighted Average
Industrial:
Chastain II 1Q99
Newpoint III 1Q99
Tradeport 1 1Q99
Tradeport 2 2Q99
Air Park South
Warehouse II 3Q99
Completed-Not Stabilized Industrial
Total or Weighted Average
Total or Weighted Average of
all Completed-Not Stabilized
Development Projects
Total or Weighted Average of
all Development Projects
- ----------
(1) Includes the effect of letters of intent.
(2) We generally consider a development project to be stabilized upon the
earlier of the first date such project is at
least 95% occupied or one year from the date of completion.
</TABLE>
8
<PAGE>
Development Analysis
<TABLE>
<CAPTION>
Rentable Estimated Pre-Leasing
Square Feet Costs Percentage (1)
------------- ------------------ ---------------
(dollars in thousands)
<S> <C> <C> <C>
Summary By Estimated Stablization Date:
First Quarter 1999 1,051,000 $ 76,267 96%
Second Quarter 1999 1,244,000 107,695 85
Third Quarter 1999 413,000 53,652 90
Fourth Quarter 1999 1,136,000 120,298 46
First Quarter 2000 1,206,000 156,259 62
Second Quarter 2000 855,000 110,082 62
Third Quarter 2000 109,000 9,238 --
Fourth Quarter 2000 343,000 46,368 34
Third Quarter 2001 200,000 29,219 100
Fourth Quarter 2001 341,000 53,000 30
--------- -------- ---
Total or Weighted Average 6,898,000 $762,078 67%
========= ======== ===
Summary by Market:
Asheville 57,000 $ 5,500 37%
Atlanta 1,083,000 76,647 68
Baltimore 125,000 15,300 --
Charlotte 262,000 24,352 25
Greenville 107,000 11,400 92
Hampton Roads 174,000 17,402 37
Jacksonville 85,000 7,560 --
Kansas City 441,000 80,482 52
Memphis 64,000 6,800 20
Nashville 722,000 97,430 69
Orlando 649,000 92,235 63
Piedmont Triad 411,000 20,600 84
Research Triangle 477,000 57,111 70
Richmond 718,000 64,535 70
South Florida 173,000 22,500 69
Tampa 1,350,000 162,224 90%
--------- -------- ---
Total or Weighted Average 6,898,000 $762,078 67%
========= ======== ===
Build-to-suit 1,432,000 $189,011 100%
Multi-tenant 5,466,000 573,067 59
--------- -------- ---
Total or Weighted Average 6,898,000 $762,078 67%
========= ======== ===
Average Average
Rentable Average Pre-
Square Feet Estimated Costs Leasing(1)
------------- ------------------ ----------
Average Per Property Type:
Office 118,830 $ 14,338 66%
Industrial 111,300 4,173 75
Retail 100,000 23,231 65
--------- -------- ----------
Weighted Average 116,915 $ 12,917 67%
========= ======== ==========
</TABLE>
- ----------
(1) Includes the effect of letters of intent.
Competition
Our properties compete for tenants with similar properties located in our
markets primarily on the basis of location, rent charged, services provided and
the design and condition of the facilities. We also compete with other REITs,
financial institutions, pension funds, partnerships, individual investors and
others when attempting to acquire and develop properties.
Employees
As of December 31, 1998, the Company employed 691 persons, as compared to
476 at December 31, 1997. As of December 31, 1998, the Operating Partnership
employed 609 persons, as compared
9
<PAGE>
to 468 persons at December 31, 1997. These increases are primarily a result of
our expansion within our existing markets and into the Kansas City metropolitan
area and Des Moines, Iowa.
ITEM 2. PROPERTIES
General
As of December 31, 1998, we owned or had a majority interest in 658
in-service office, industrial and retail properties, encompassing approximately
44.6 million rentable square feet and 2,325 apartment units. The following table
sets forth certain information about our majority-owned in-service properties at
December 31, 1998 in each of our 20 markets:
<TABLE>
<CAPTION>
Percentage of December 1998 Rental Revenue
Rentable ----------------------------------------------------------
Square Feet (1) Occupancy (2) Office Industrial Retail Multi-Family Total
------------------ --------------- ---------- ------------ -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Research Triangle ......... 5,095,000 92% 12.6% 0.3% -- -- 12.9%
Tampa ..................... 4,651,000 92 11.2 0.4 -- -- 11.6
Kansas City ............... 3,052,000(3) 93 3.0 0.3 4.8% 3.1% 11.2
Atlanta ................... 5,495,000 94 8.2 2.0 -- 10.2
Piedmont Triad ............ 5,069,000 97 5.7 4.3 -- -- 10.0
South Florida ............. 3,182,000 92 8.1 0.6 -- -- 8.7
Orlando ................... 2,546,000 94 6.3 -- -- -- 6.3
Nashville ................. 2,052,000 93 5.0 0.6 -- -- 5.6
Richmond .................. 1,633,000 93 3.8 0.2 -- -- 4.0
Charlotte ................. 2,043,000 95 3.4 0.5 -- -- 3.9
Jacksonville .............. 1,482,000 93 3.2 -- -- -- 3.2
Greenville ................ 1,113,000 95 2.4 0.2 -- -- 2.6
Memphis ................... 779,000 98 2.6 -- -- -- 2.6
Baltimore ................. 763,000 95 2.1 -- -- -- 2.1
Des Moines ................ 410,000 97 1.2 -- -- 0.6 1.8
Tallahassee ............... 410,000 97 1.2 -- -- -- 1.2
Columbia .................. 425,000 96 1.2 -- -- -- 1.2
Hampton Roads ............. 266,000 98 0.4 0.1 -- -- 0.5
Asheville ................. 124,000 100 0.2 0.1 -- -- 0.3
Ft. Myers ................. 52,000 64 0.1 -- -- -- 0.1
----------- --- ---- --- --- --- -----
44,642,000(3) 94% 81.9% 9.6% 4.8% 3.7% 100.0%
============ === ==== === === === =====
</TABLE>
- ----------
(1) Excludes 1,907 apartment units in Kansas City and 418 apartment units in Des
Moines.
(2) Excludes Kansas City's apartment units occupancy of 96% and Des Moines'
apartment units occupancy of 99%.
(3) Excludes 572,000 square feet of basement space.
10
<PAGE>
The following table sets forth certain information about the portfolio of
our majority-owned in-service and development properties as of December 31, 1998
and 1997:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
---------------------------- ---------------------------
Percent Percent
Rentable Leased/ Rentable Leased/
Square Feet Pre-Leased Square Feet Pre-leased
------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
In-Service
Office .................. 31,110,000 94% 23,842,000 94%
Industrial .............. 11,871,000 93 6,879,000 93
Retail .................. 1,661,000 92 -- --
---------- -- ---------- --
Total .................. 44,642,000 94% 30,721,000 94%
========== == ========== ==
Under Development
Completed -- Not Stabilized
Office .................. 1,196,000 77% -- --
Industrial .............. 461,000 89 -- --
Retail .................. -- -- -- --
---------- -- ---------- --
Total .................. 1,657,000 80% -- --
========== == ========== ==
In Process
Office .................. 4,389,000 63% 2,688,000 43%
Industrial .............. 652,000 66 585,000 26
Retail .................. 200,000 65 -- --
---------- -- ---------- --
Total .................. 5,241,000 64% 3,273,000 40%
========== == ========== ==
Total
Office .................. 36,695,000 26,530,000
Industrial .............. 12,984,000 7,464,000
Retail .................. 1,861,000 --
---------- ----------
Total .................. 51,540,000 33,994,000
========== ==========
</TABLE>
Tenants
The following table sets forth information concerning the 20 largest
tenants of our majority-owned in-service properties as of December 31, 1998:
<TABLE>
<CAPTION>
Percent of Total
Number Annualized Annualized
Tenant of Leases Rental Revenue (1) Rental Revenue
- -------------------------------------------- ----------- -------------------- -----------------
(dollars in thousands)
<S> <C> <C> <C>
1. IBM .................................... 15 $ 14,422 2.6%
2. Federal Government ..................... 64 13,991 2.5
3. Bell South ............................. 56 9,693 1.8
4. The Racal Corporation .................. 12 6,878 1.2
5. US Airways ............................. 9 6,513 1.2
6. AT&T ................................... 7 6,462 1.2
7. State of Florida ....................... 27 6,341 1.1
8. Northern Telecom Inc. ................. 3 5,193 0.9
9. Sara Lee ............................... 10 4,953 0.9
10. Sprint ................................. 18 4,722 0.9
11. NationsBank ............................ 27 4,606 0.8
12. Intermedia Communications .............. 17 4,361 0.8
13. PricewaterhouseCoopers ................. 6 3,793 0.7
14. MCI Worldcom ........................... 28 3,693 0.7
15. GTE .................................... 8 3,688 0.7
16. Prudential ............................. 20 3,632 0.7
17. Blue Cross & Blue Shield of NC ......... 8 3,343 0.6
18. Travelers .............................. 5 3,122 0.6
19. Lockheed Martin Corporation ............ 2 2,949 0.5
20. ClinTrials Research .................... 1 2,790 0.5
-- -------- ----
Total ................................. 343 $115,145 20.9%
=== ======== ====
</TABLE>
- ----------
(1) Annualized Rental Revenue is December 1998 rental revenue (base rent plus
operating expense pass-throughs) multiplied by 12.
11
<PAGE>
The following tables set forth certain information about leasing activities
at our majority-owned in-service properties (excluding apartment units) for the
years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998
-------------------------------------------
Office Industrial Retail
-------------- -------------- -------------
<S> <C> <C> <C>
Net Effective Rents Related to
Re-Leased Space:
Number of lease transactions (signed
leases) ................................ 1,042 207 26
Rentable square footage leased .......... 5,004,005 1,400,108 66,964
Average per rentable square foot over
the lease term:
Base rent .............................. $ 16.00 $ 5.81 $ 14.81
Tenant improvements .................... ( 0.81) (0.26) ( 0.82)
Leasing commissions .................... ( 0.35) (0.12) ( 0.58)
Rent concessions ....................... ( 0.03) (0.00) ( 0.26)
----------- ---------- -------
Effective rent ......................... $ 14.81 $ 5.43 $ 13.15
Expense stop (1) ....................... ( 4.25) (0.37) ( 0.84)
----------- ---------- -------
Equivalent effective net rent .......... $ 10.56 $ 5.06 $ 12.31
=========== ========== =======
Average term in years ................... 5 3 6
=========== ========== =======
Rental Rate Trends:
Average final rate with expense pass-
throughs ............................... $ 14.12 $ 5.39 $ 10.35
Average first year cash rental rate ..... $ 15.12 $ 5.58 $ 12.41
----------- ---------- -------
Percentage increase ..................... 7.08% 3.53% 19.9 %
=========== ========== =======
Capital Expenditures Related to
Re-leased Space:
Tenant Improvements:
Total dollars committed under
signed leases ......................... $19,144,349 $1,226,526 $340,620
Rentable square feet ................... 5,004,005 1,400,108 66,964
----------- ---------- --------
Per rentable square foot ............... $ 3.83 $ 0.88 $ 5.09
=========== ========== ========
Leasing Commissions:
Total dollars committed under
signed leases ......................... $ 8,348,495 $ 558,840 $222,315
Rentable square feet ................... 5,004,005 1,400,108 66,964
----------- ---------- --------
Per rentable square foot ............... $ 1.67 $ 0.40 $ 3.32
=========== ========== ========
Total:
Total dollars committed under
signed leases ......................... $27,492,844 $1,785,367 $562,935
Rentable square feet ................... 5,004,005 1,400,108 66,964
----------- ---------- --------
Per rentable square foot ............... $ 5.49 $ 1.28 $ 8.41
=========== ========== ========
<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 (1) ....................... ( 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>
- ----------
(1) "Expense stop" represents operating expenses (generally including taxes,
utilities, routine building expense and common area maintenance) for which
we will not be reimbursed by our tenants.
12
<PAGE>
The following tables set forth scheduled lease expirations for executed
leases at our majority-owned in-service properties (excluding apartment units)
as of December 31, 1998, assuming no tenant exercises renewal options.
Office Properties:
<TABLE>
<CAPTION>
Average Percentage of
Percentage of Annual Leased Rents
Rentable Leased Annual Rents Rental Rate Represented
Number of Square Feet Square Footage Under Per Square by
Lease Leases Subject to Represented by Expiring Footfor Expiring
Expiring Expiring Expiring Leases Expiring Leases Leases (1) Expirations(1) Leases
- ------------ ----------- ----------------- ----------------- -------------- ----------------- --------------
(dollars in thousands, except per square foot amounts)
<S> <C> <C> <C> <C> <C>
<C>
1999 1,157 4,591,018 15.7% $ 67,351 $14.67 14.9%
2000 888 4,301,260 14.7 68,599 15.95 15.1
2001 822 4,423,839 15.2 70,487 15.93 15.6
2002 606 4,075,947 14.0 65,138 15.98 14.4
2003 547 3,777,446 12.9 59,652 15.79 13.2
2004 123 1,593,580 5.5 25,073 15.73 5.5
2005 79 1,231,194 4.2 18,365 14.92 4.1
2006 49 1,266,155 4.3 19,601 15.48 4.3
2007 30 852,442 2.9 13,792 16.18 3.0
2008 50 1,858,769 6.4 24,513 13.19 5.4
Thereafter 38 1,217,215 4.2 20,538 16.87 4.5
----- --------- ----- -------- ------- -----
4,389 29,188,865 100.0% $453,109 $ 15.52 100.0%
===== ========== ===== ======== ======== =====
</TABLE>
Industrial Properties:
<TABLE>
<CAPTION>
Average Percentage of
Percentage of Annual Leased Rents
Rentable Leased Annual Rents Rental Rate Represented
Number of Square Feet Square Footage Under Per Square by
Lease Leases Subject to Represented by Expiring Footfor Expiring
Expiring Expiring Expiring Leases Expiring Leases Leases (1) Expirations(1) Leases
- ------------ ----------- ----------------- ----------------- -------------- ----------------- --------------
(dollars in thousands, except per square foot amounts)
<S> <C> <C> <C> <C> <C> <C>
1999 277 3,200,856 28.9% $16,432 $5.13 30.7%
2000 169 2,101,731 18.9 10,035 4.77 18.8
2001 150 1,747,306 15.7 8,198 4.69 15.4
2002 63 1,194,952 10.8 5,436 4.55 10.2
2003 47 677,846 6.1 3,471 5.12 6.5
2004 14 1,084,333 9.8 4,259 3.93 8.0
2005 10 125,380 1.1 906 7.23 1.7
2006 2 196,600 1.8 892 4.54 1.7
2007 4 489,125 4.4 1,726 3.53 3.2
2008 6 247,737 2.2 1,879 7.58 3.5
Thereafter 1 29,876 0.3 166 5.56 0.3
--- --------- ----- ------- ------- -----
743 11,095,742 100.0% $53,400 $4.81 100.0%
=== ========== ===== ======= ======= =====
</TABLE>
- ----------
(1) Annual Rents Under Expiring Leases are December 1998 rental revenue (base
rent plus operating expense pass-throughs) multiplied by 12.
13
<PAGE>
Retail Properties:
<TABLE>
<CAPTION>
Average Percentage of
Percentage of Annual Leased Rents
Rentable Leased Annual Rents Rental Rate Represented
Number of Square Feet Square Footage Under Per Square by
Lease Leases Subject to Represented by Expiring Footfor Expiring
Expiring Expiring Expiring Leases Expiring Leases Leases (1) Expirations(1) Leases
- ------------ ----------- ----------------- ----------------- -------------- ----------------- --------------
(dollars in thousands, except per square foot amounts)
<S> <C> <C> <C> <C> <C> <C>
1999 105 448,476 20.7% $ 4,079 $9.10 15.5%
2000 72 266,311 12.3 3,086 11.59 11.7
2001 62 232,185 10.7 3,241 13.96 12.3
2002 39 155,927 7.2 2,099 13.46 8.0
2003 41 201,509 9.3 3,100 15.38 11.8
2004 14 157,114 7.3 1,138 7.24 4.3
2005 13 64,999 3.0 1,376 21.17 5.2
2006 9 103,967 4.8 1,151 11.07 4.4
2007 8 63,125 2.9 987 15.64 3.7
2008 14 105,765 4.9 2,333 22.06 8.8
Thereafter 21 363,400 16.9 3,784 10.41 14.3
--- ------- ----- ------- ------- -----
398 2,162,778 100.0% $26,374 $12.19 100.0%
=== ========= ===== ======= ======= =====
</TABLE>
Total:
<TABLE>
<CAPTION>
Percentage of
Percentage of Leased Rents
Rentable Leased Annual Rents Represented
Number of Square Feet Square Footage Under by
Lease Leases Subject to Represented by Expiring Expiring
Expiring Expiring Expiring Leases Expiring Leases Leases (1) Leases
- ------------ ----------- ----------------- ----------------- -------------- --------------
(dollars in thousands, except per square foot amounts)
<S> <C> <C> <C> <C> <C>
1999 1,539 8,240,350 19.4% $ 87,862 16.5%
2000 1,129 6,669,302 15.7 81,720 15.3
2001 1,034 6,403,330 15.1 81,926 15.4
2002 708 5,426,826 12.8 72,673 13.6
2003 635 4,656,801 11.0 66,223 12.4
2004 151 2,835,027 6.7 30,470 5.7
2005 102 1,421,573 3.3 20,647 3.9
2006 60 1,566,722 3.7 21,644 4.1
2007 42 1,404,692 3.3 16,505 3.1
2008 70 2,212,271 5.2 28,725 5.4
Thereafter 60 1,610,491 3.8 24,488 4.6
----- --------- ----- -------- -----
5,530 42,447,385 100.0% $532,883 100.0%
===== ========== ===== ======== =====
</TABLE>
- ----------
(1) Annual Rents Under Expiring Leases are December 1998 rental revenue (base
rent plus operating expense pass-throughs) multiplied by 12.
14
<PAGE>
Development Land
As of December 31, 1998, we owned 1,417 acres and had committed to purchase
over the next four years an additional 626 acres of land for development. We
estimate that we can develop approximately 22 million square feet of office,
industrial and retail space on the development land.
All of the development land is zoned and available for office, industrial
or retail development, substantially all of which has utility infrastructure
already in place. We believe that our commercially zoned and unencumbered land
in existing business parks gives us an advantage in our future development
activities over other commercial real estate development companies in many of
our 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, we 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.
ITEM 3. LEGAL PROCEEDINGS
On October 2, 1998, John Flake, a former stockholder of J.C. Nichols, filed
a putative class action lawsuit on behalf of himself and the other former
stockholders of J.C. Nichols in the United States District Court for the
District of Kansas against J.C. Nichols, certain of its former officers and
directors and the Company. The complaint alleges, among other things, that in
connection with the merger of J.C. Nichols and the Company, (1) J.C. Nichols and
the named directors and officers of J.C. Nichols breached their fiduciary duties
to J.C. Nichols' stockholders, (2) J.C. Nichols and the named directors and
officers of J.C. Nichols breached their fiduciary duties to members of the J.C.
Nichols Company Employee Stock Ownership Trust, (3) all defendants participated
in the dissemination of a proxy statement containing materially false and
misleading statements and omissions of material facts in violation of Section
14(a) of the Securities Exchange Act of 1934 and (4) the Company filed a
registration statement with the SEC containing materially false and misleading
statements and omissions of material facts in violation of Sections 11 and 12(2)
of the Securities Act of 1933. The plaintiffs seek equitable relief and monetary
damages. We believe that the defendants have meritorious defenses to the
plaintiffs' allegations. We intend to vigorously defend this litigation and have
filed a motion to dismiss all claims asserted against the defendants. Due to the
inherent uncertainties of the litigation process and the judicial system, we are
not able to predict the outcome of this litigation. If this litigation is not
resolved in our favor, it could have a material adverse effect on our business,
financial condition and results of operations.
In addition, we are a party to a variety of legal proceedings arising in
the ordinary course of our business. We believe that we are adequately covered
by insurance and indemnification agreements. Accordingly, none of such
proceedings are expected to have a material adverse effect on our business,
financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE>
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
The Company is the sole general partner of the Operating Partnership. The
following table sets forth certain information with respect to the Company's
executive officers:
<TABLE>
<CAPTION>
Name Age Position and Background
- ---------------------- ----- ---------------------------------------------------------------------------
<S> <C> <C>
Ronald P. Gibson 54 Director, President and Chief Executive Officer. Mr. Gibson is one of our
founders and has served as President or managing partner of our
predecessor since its formation in 1978.
John L. Turner 52 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 40 Executive Vice President, Chief Operating Officer and Secretary.
Mr. Fritsch joined us in 1982.
James R. Heistand 47 Director and Senior Vice President. Mr. Heistand is responsible for our
operations in Florida. Mr. Heistand was the founder and president of
Associated Capital Properties, Inc. prior to its merger with the Company.
Gene H. Anderson 53 Director and Senior Vice President. Mr. Anderson manages the operations
of our Georgia properties. Mr. Anderson was the founder and president
of Anderson Properties, Inc. prior to its merger with the Company.
Michael E. Harris 49 Senior Vice President. Mr. Harris is responsible for our operations in
Tennessee, Missouri, Kansas and Maryland. Mr. Harris was executive vice
president of Crocker Realty Trust prior to its merger with the Company.
Before joining Crocker Realty Trust, Mr. Harris served as senior vice
president, general counsel and chief financial officer of Towermarc
Corporation, a privately owned real estate development firm.
Marcus H. Jackson 42 Senior Vice President. Mr. Jackson is responsible for our operations in
Virginia, North Carolina and South Carolina. Prior to joining us in 1998,
Mr. Jackson was senior vice president of Compass Development and
Construction Services.
Carman J. Liuzzo 38 Vice President, Chief Financial Officer and Treasurer. Prior to joining us
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 49 Vice President and General Counsel. Prior to joining us in 1997,
Mr. Pridgen was a partner with Smith Helms Mulliss & Moore, L.L.P.
</TABLE>
As we have expanded into new markets, we have 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, Anderson and
Heistand each joined us as executive officers as a result of such business
combinations. Mr. Turner entered into a three-year employment contract with us
in 1995 and Messrs. Anderson and Heistand each entered into a three-year
employment contract with us in 1997.
16
<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 19, 1999, there were 203 record holders of Common Units (other than the
Company).
<TABLE>
<CAPTION>
Quarter 1998 1997
Ended: Distributions Distributions
- ---------------------- --------------- --------------
<S> <C> <C>
March 31 ............. $ 0.51 $ 0.48
June 30 .............. 0.51 0.48
September 30 ......... 0.54 0.51
December 31 .......... 0.54 0.51
</TABLE>
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. In connection
with acquisitions in 1998, the Operating Partnership issued 718,245 Common Units
in offerings exempt from the registration requirements of the Securities Act. We
exercised reasonable care to assure that each of the offerees of Common Units in
1998 was an "accredited investor" under Rule 501 of the Securities Act and that
the investors were not purchasing the Common Units with a view to their
distribution. Specifically, we relied on the exemptions provided by Section 4(2)
of the Securities Act or Rule 506 under the Securities Act.
ITEM 6. SELETED FINANCIAL DATA
The following table sets forth selected financial and operating information
for the Operating Partnership as of December 31, 1998, 1997, 1996, 1995 and
1994, for the years ended December 31, 1998, 1997, 1996, 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) 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
in1995 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.
17
<PAGE>
The Operating Partnership and the Highwoods Group
<TABLE>
<CAPTION>
Operating Partnership
-----------------------------------------------------------------------------
June 14, 1994
Year Ended Year Ended Year Ended Year Ended to
December 31, December 31, December 31, December 31, December 31,
1998 1997 1996 1995 1994
-------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands, except per share amounts)
Operating Data:
Total revenue ......................... $ 511,478 $ 273,165 $ 132,302 $ 73,522 $ 19,442
Rental property
operating expenses ................... 154,211 76,743 33,657 17,049(1) 5,110(1)
General and
administrative ....................... 20,776 10,216 5,636 2,737 810
Interest expense ...................... 93,959 47,394 25,230 13,720 3,220
Depreciation and amortization ......... 91,397 47,260 21,105 11,082 2,607
------------ ----------- ----------- ------------ ------------
Income before extraordinary
item ................................. 151,135 91,552 46,674 28,934 7,695
Extraordinary item-loss
on early extinguishment
of debt .............................. (387) (6,945) (2,432) (1,068) (1,422)
------------ ----------- ----------- ------------ ------------
Net income ............................ $ 150,748 $ 84,607 $ 44,242 $ 27,866 $ 6,273
Dividends on preferred units .......... (30,092) (13,117) -- -- --
------------ ----------- ----------- ------------ ------------
Net income available for
Common Unit holders .................. $ 120,656 $ 71,490 $ 44,242 $ 27,866 $ 6,273
============ =========== =========== ============ ============
Net income per Common
Unit -- basic ........................ $ 1.88 $ 1.54 $ 1.48 $ 1.49 $ .63
============ =========== =========== ============ ============
Net income per Common
Unit -- diluted ...................... $ 1.87 $ 1.53 $ 1.47 $ 1.48 $ .63
============ =========== =========== ============ ============
Balance Sheet Data
(at end of period):
Real estate, net of
accumulated
depreciation ......................... $ 3,891,883 $ 2,601,211 $ 1,364,606 $ 593,066 $ 207,976
------------ ----------- ----------- ------------ ------------
Total assets .......................... 4,247,700 2,707,240 1,429,488 621,134 224,777
------------ ----------- ----------- ------------ ------------
Total mortgages and
notes payable ........................ 1,906,216 978,558 555,876 182,736 66,864
------------ ----------- ----------- ------------ ------------
Other data:
Number of in-service
properties ........................... 658 481 292 191 44
------------ ----------- ----------- ------------ ------------
Total rentable square
feet ................................. 44,642,000 30,721,000 17,455,000 9,215,000 2,746,000
============ =========== =========== ============ ============
<CAPTION>
The Operating Partnership and the Highwoods Group
Operating
Partnership Highwoods
Pro Forma Group
------------- January 1,
Year Ended 1994 to
December 31, June 13,
1994 1994
-------------- --------------
<S> <C> <C>
Operating Data:
Total revenue ......................... $ 34,282 $ 6,648
Rental property
operating expenses ................... 9,677(1) 2,596(2)
General and
administrative ....................... 1,134 280
Interest expense ...................... 5,604 2,473
Depreciation and amortization ......... 4,638 835
----------- -----------
Income before extraordinary
item ................................. 13,229 464
Extraordinary item-loss
on early extinguishment
of debt .............................. -- --
----------- -----------
Net income ............................ $ 13,229 $ 464
===========
Dividends on preferred units .......... --
-----------
Net income available for
Common Unit holders .................. 13,229
===========
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 ......................... $ -- $ --
----------- -----------
Total assets .......................... -- --
----------- -----------
Total mortgages and
notes payable ........................ -- --
----------- -----------
Other data:
Number of in-service
properties ........................... -- 14
----------- -----------
Total rentable square
feet ................................. -- 817,000
=========== ===========
</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.
18
<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 interests in the properties and conducts substantially all of
its operations. We acquired three additional properties in 1994 after the
Formation Transaction.
In February 1995, we expanded into other North Carolina markets and
diversified our portfolio to include industrial and service center properties
with our $170 million, 57-property business combination with Forsyth Partners.
During 1995, we acquired an aggregate of 144 properties, encompassing 6,357,000
square feet, at an initial cost of $369.9 million.
In September 1996, we acquired 5.7 million rentable square feet of office
and service center space through our $566 million merger with Crocker Realty
Trust, Inc. During 1996, we acquired an aggregate of 91 properties, encompassing
7,325,500 square feet, at an initial cost of $704.0 million.
In October 1997, we acquired 6.4 million rentable square feet of office
space through our $617 million merger with Associated Capital Properties, Inc.
During 1997, we acquired an aggregate of 176 properties, encompassing 12.8
million rentable square feet, at an initial cost of $1.1 billion.
During 1998, we acquired an aggregate of 186 properties, encompassing 14.9
million square feet and 2,325 apartment units, at an initial cost of $1.2
billion. See "Business -- Recent Developments" for a table summarizing all
mergers and acquisitions completed during 1998.
This information should be read in conjunction with the accompanying
consolidated financial statements and the related notes thereto.
Results of Operations
Comparison of 1998 to 1997. Revenue from rental operations increased $229.8
million, or 86.1%, from $266.9 million for the year ended December 31, 1997 to
$496.7 million for the year ended December 31, 1998. The increase is a result of
our acquisition and development activity in 1997 and 1998. In total, we acquired
186 office, industrial and retail properties, encompassing 14.9 million square
feet and 2,325 apartment units during 1998. Same property revenues, which are
the revenues of the 282 in-service properties (encompassing 16.7 million square
feet) owned on January 1, 1997 and December 31, 1998, increased 4.7% for the
year ended December 31, 1998, compared to the year ended December 31, 1997.
During 1998, 1,312 leases, representing 6.4 million square feet of office,
industrial and retail space, were executed at an average rate per square foot
which was 6.8% higher than the average rate per square foot on the expired
leases.
Interest and other income increased $7.0 million from $6.2 million in 1997
to $13.2 million in 1998. The increase is primarily related to an increase in
interest income as we maintained a higher cash position. We also generated
additional management fees, development fees and leasing commissions in 1998.
The Operating Partnership generated $650,000 in auxiliary income (vending and
parking) as a result of acquiring multifamily communities in the merger with
J.C. Nichols.
Rental operating expenses increased $77.5 million, or 101.0%, from $76.7
million in 1997 to $154.2 million in 1998. Rental expenses as a percentage of
related rental revenues increased from 28.7% in
19
<PAGE>
1997 to 31.0% in 1998. The increase is a result of an increase in the percentage
of office properties in the portfolio, which have fewer triple net lease
pass-throughs.
Depreciation and amortization for the years ended December 31, 1998 and
1997 were $91.4 million and $47.3 million, respectively. The increase of $44.1
million, or 93.2%, is due to an average increase in depreciable assets and
deferred leasing costs. Interest expense increased $46.6 million, or 98.3%, from
$47.4 million in 1997 to $94.0 million in 1998. The increase is attributable to
an average increase in outstanding debt related to our acquisition and
development activities. Interest expense for the years ended December 31, 1998
and 1997 included $2.6 million and $2.3 million, respectively, of amortization
of noncash deferred financing costs and of the costs related to our interest
rate hedge contracts. General and administrative expenses increased from 3.8% of
total rental revenue in 1997 to 4.2% in 1998.
Net income before extraordinary item equaled $151.1 million and $91.6
million for the years ended December 31, 1998 and 1997, respectively. The
Operating Partnership incurred an extraordinary loss in the first quarter of
1997 of $3.3 million related to the early extinguishing of debt assumed in the
acquisition of the Anderson Properties and Century Center portfolios. The
Operating Partnership also recorded $30.1 million and $13.1 million in preferred
unit dividends for the years ended December 31, 1998 and 1997, respectively.
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, 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 lease pass-throughs.
Depreciation and amortization for the years ended December 31, 1997, and
1996 was $47.3 million and $21.1 million, respectively. The increase of $26.2
million, or 124.2%, is due to an average increase in depreciable assets of
103.5%. Interest expense increased 88.1%, or $22.2 million, from $25.2 million
in 1996 to $47.4 million in 1997. The increase is attributable to the increase
in outstanding debt related to our 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 noncash deferred financing costs and
amortization of the costs related to our interest rate hedge contracts.
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 our growth in 1997. Duplication of personnel costs in the third
quarter of 1996 related to the acquisition of Crocker Realty Trust 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.
20
<PAGE>
Liquidity and Capital Resources
Statement of Cash Flows. The Operating Partnership generated $261.5 million
in cash flows from operating activities and $713.8 million in cash flows from
financing activities for the year ended December 31, 1998. These combined cash
flows of $1.0 billion were used to fund investing activities during 1998. Such
investing activities consisted primarily of development and acquisition activity
during 1998. See "Business -- Recent Developments."
Capitalization. The Operating Partnership's indebtedness at December 31,
1998 totaled $1.9 billion and was comprised of $609.1 million of secured
indebtedness with a weighted average interest rate of 7.7% and $1.3 billion of
unsecured indebtedness with a weighted average interest rate of 7.0%. Except as
stated below, all of the mortgage and notes payable outstanding at December 31,
1998 were either fixed rate obligations or variable rate obligations covered by
interest rate hedge contracts. A portion of our $600 million unsecured revolving
loan and approximately $72.8 million of floating rate notes payable assumed upon
consummation of the merger with J.C. Nichols were not covered by interest rate
hedge contracts on December 31, 1998.
We completed the following financing activities during 1998:
o January 1998 Offering. On January 27, 1998, the Company sold 2,000,000 shares
of Common Stock in an underwritten public offering for net proceeds of
approximately $68.2 million, which were contributed to the Operating
Partnership in exchange for additional Common Units.
o 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,
in an underwritten public offering for net proceeds of approximately $226.3
million.
o February 1998 Common Stock Offerings. On February 12, 1998, the Company sold
an aggregate of 1,553,604 shares of Common Stock in two underwritten public
offerings for net proceeds of approximately $51.2 million, which were
contributed to the Operating Partnership in exchange for additional Common
Units.
o March 1998 Offering. On March 30, 1998, the Company sold 428,572 shares of
Common Stock in an underwritten public offering for net proceeds of
approximately $14.2 million, which were contributed to the Operating
Partnership in exchange for additional Common Units.
o April 1998 Debt Offering. On April 20, 1998, the Operating Partnership sold
$200 million of 7 1/2% notes due April 15, 2018, in an underwritten public
offering for net proceeds of approximately $197.4 million.
o April 21, 1998 Common Stock Offering. On April 21, 1998, the Company sold
441,176 shares of Common Stock in an underwritten public offering for net
proceeds of approximately $14.2 million, which were contributed to the
Operating Partnership in exchange for additional Common Units.
o Series D Preferred Offering. On April 23, 1998, the Company sold 4,000,000
depositary shares, each representing 1/10 of a share of the Company's 8%
Series D Cumulative Redeemable Preferred Shares, in an underwritten public
offering for net proceeds of approximately $96.7 million, which were
contributed to the Operating Partnership in exchange for Series D Preferred
Units.
o April 29, 1998 Common Stock Offering. On April 29, 1998, the Company sold
1,080,443 shares of Common Stock in an underwritten public offering for net
proceeds of approximately $34.6 million, which were contributed to the
Operating Partnership in exchange for additional Common Units.
o $600 Million Credit Facility. On July 3, 1998, we obtained a $600 million
unsecured revolving loan (the "Revolving Loan"). The Revolving Loan matures in
July 2001 and replaced our two previously existing revolving loans aggregating
$430 million. The Revolving Loan carries an interest rate based upon the
Operating Partnership's senior unsecured credit rating. The Revolving Loan
also includes a
21
<PAGE>
$300 million competitive bid sub-facility. The Revolving Loan was amended as of
December 31, 1998, primarily to ease the restrictions imposed by certain
financial covenants.
o November 1998 Debt Offering. On November 25, 1998, the Operating Partnership
sold $150 million of 8% notes due December 1, 2003, in an underwritten public
offering for net proceeds of approximately $148.1 million.
o December 1998 Debt Offering. On December 9, 1998, the Operating Partnership
sold $50 million of 8 1/8% notes due January 15, 2009, in an underwritten
public offering for net proceeds of approximately $49.3 million.
o Issuance of Common Units and Common Stock. In connection with 1998
acquisitions, the Operating Partnership issued approximately 750,000 Common
Units and the Company issued approximately 5.6 million shares of Common Stock
for an aggregate value of approximately $386.1 million (based on the market
price of a share of Common Stock at the time of the acquisition).
To meet in part our long-term liquidity requirements, we borrow funds at a
combination of fixed and variable rates. Borrowings under the Revolving Loan
bear interest at variable rates. Our long-term debt, which consists of long-term
financings and the issuance of debt securities, typically bears interest at
fixed rates. In addition, we have assumed fixed rate and variable rate debt in
connection with acquiring properties. Our interest rate risk management
objective is to limit the impact of interest rate changes on earnings and cash
flows and to lower our overall borrowing costs. To achieve these objectives,
from time to time we enter into interest rate hedge contracts such as collars,
swaps, caps and treasury lock agreements in order to mitigate our interest rate
risk with respect to various debt instruments. We do not hold or issue these
derivative contracts for trading or speculative purposes.
The following table sets forth information regarding our interest rate
hedge contracts as of December 31, 1998:
<TABLE>
<CAPTION>
Notional Maturity Fixed
Type of Hedge Amount Date Reference Rate Rate
- ----------------- ---------- ---------- ----------------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Treasury Lock $100,000 10/1/99 10-Year Treasury 5.725%
Treasury Lock 50,000 3/10/99 10-Year Treasury 5.631
Treasury Lock 100,000 7/1/99 10-Year Treasury 5.674
Swap 100,000 10/1/99 3-Month LIBOR 4.970
Swap 21,112 6/10/02 1-Month LIBOR + 0.75% 7.700
Collar 80,000 10/15/01 1-Month LIBOR 5.40-6.25
</TABLE>
We enter into swaps, collars and caps to limit our exposure to an increase
in variable interest rates, particularly with respect to amounts outstanding
under our Revolving Loan. The interest rate on all of our variable rate debt is
adjusted at one- and three-month intervals, subject to settlements under these
contracts. We also enter into treasury lock agreements from time to time in
order to limit our exposure to an increase in interest rates with respect to
future debt offerings. Our net payments made to counterparties under interest
rate hedge contracts were $48,000 during 1998. See also our financial statements
and notes thereto.
In addition, we are exposed to certain losses in the event of
nonperformance by the counterparties under the interest rate hedge contracts. We
expect the counterparties, which are major financial institutions, to perform
fully under these contracts. However, if the counterparties were to default on
their obligations under the interest rate hedge contracts, we could be required
to pay the full rates on our debt, even if such rates were in excess of the
rates in the contracts.
Current and Future Cash Needs. Historically, rental revenue has been the
principal source of funds to pay operating expenses, debt service, stockholder
distributions and capital expenditures, excluding nonrecurring capital
expenditures. In addition, construction management, maintenance, leasing
22
<PAGE>
and management fees have provided sources of cash flow. We presently have no
plans for major capital improvements to the existing properties, other than
normal recurring building improvements, tenant improvements and lease
commissions. We expect to meet our short-term liquidity requirements generally
through working capital and net cash provided by operating activities along with
the Revolving Loan.
Our short-term (within the next 12 months) liquidity needs also include,
among other things, the funding of approximately $350 million of our existing
development activity. See "Business -- Development Activity." We expect to find
our short-term liquidity needs through a combination of:
o additional borrowings under our Revolving Loan (approximately $144 million
was available as of March 31, 1999);
o the issuance of secured debt;
o the selective disposition of non-core assets; and
o the sale or contribution of some of our wholly owned properties to
strategic joint ventures to be formed with selected partners interested in
investing with us, which will have the net effect of generating additional
capital through such sale or contributions.
Because of certain financial covenants set forth in the Revolving Loan, we
intend to finance a significant portion of our short-term development expenses
through asset sales and joint ventures. Although we believe that we will be able
to fund our short-term development commitments, an inability to sell a
sufficient number of non-core assets or to enter into significant joint venture
arrangements of the type described above could adversely affect our liquidity.
Our long-term liquidity needs generally include the funding of existing and
future development activity, selective asset acquisitions and the retirement of
mortgage debt, amounts outstanding under the Revolving Loan and long-term
unsecured debt. We remain committed to maintaining a flexible and conservative
capital structure. Accordingly, we expect to meet our long-term liquidity needs
through a combination of (1) the issuance by the Operating Partnership of
additional unsecured debt securities, (2) the issuance of additional equity
securites by the Company and the Operating Partnership as well as (3) the soures
described above with respect to our short-term liquidity. We expect to use such
sources to meet our long-term liquidity requirements either through direct
payments or repayment of borrowings under the Revolving Loan. We do not intend
to reserve funds to retire existing secured or unsecured indebtedness upon
maturity. Instead, we will seek to refinance such debt at maturity or retire
such debt through the issuance of equity or debt securities.
We anticipate that our 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 our capital and liquidity needs in both
the short and long-term. However, if these sources of funds are insufficient or
unavailable, our ability to satisfy our cash requirements may be adversely
affected.
Recent Developments
Joint Venture Activity. On March 15, 1999, we closed a transaction with
Schweiz-Deutschland-USA Dreilander Beteiligung Objekt-DLF 98/29-Walker Fink-KG
("DLF"), pursuant to which we sold or contributed certain office properties
valued at approximately $142 million to a newly created limited partnership (the
"Joint Venture"). DLF contributed approximately $55 million for a 77.19%
interest in the Joint Venture, and the Joint Venture borrowed approximately $71
million from third-party lenders. We retained the remaining 22.81% interest in
the Joint Venture, received cash proceeds of approximately $126 million and are
the sole and exclusive manager and leasing agent of the Joint Venture's
properties, for which we receive customary management fees and leasing
commissions. We used the cash proceeds received in the transaction to fund
existing development activity either through direct payments or repayment of
borrowings under the Revolving Loan.
23
<PAGE>
Pending Disposition Activity. We have recently entered into agreements to
sell approximately 3.9 million rentable square feet of non-core office and
industrial properties for gross proceeds of approximately $385 million. Non-core
properties generally include single buildings or business parks that do not fit
our long-term strategy. The transactions are subject to customary closing
conditions such as expiration of the buyers' due diligence periods. Although we
believe that the transactions will close by May 31, 1999, we can provide no
assurance that all or part of the transactions will be consummated.
Year 2000
Background. The Year 2000 compliance issue refers to the inability of
computer systems and computer software to correctly process any date after 1999.
The date change to the new millennium may be a problem because some computer
hardware and software was designed to use only two digits to represent a year.
As a result, some systems may interpret 1/1/00 to be the year 1900. In addition,
some systems may not recognize that the Year 2000 is a leap year. Both problems
could result in system failure or miscalculations, which may cause disruptions
of operations.
The Year 2000 issue, if not corrected, could result in the failure of the
information technology ("IT") systems that we use in our business operations,
such as computer programs related to property management, leasing, financial
reporting, employee benefits, asset management and energy management. In
addition, computerized systems and microprocessors are embedded in a variety of
products used in our operations and properties, such as HVAC controls, lights,
power generators, elevators, life safety systems, phones and security systems.
Approach and Status. Our Year 2000 compliance efforts are divided into two
areas -- "operations level" and "property level." Operations level includes
those information technology systems used in our corporate and division offices
to perform real estate, accounting and human resources functions. Property level
includes the information technology and non-information technology systems at
our individual properties.
Our Information Technology Department is overseeing our operations level
compliance program. With respect to our operations level IT software, we have
completed all three phases (assessment, renovation and validation) of our Year
2000 remediation plan. As part of a standardization of our technology
infrastructure in 1998, computer software that was not Year 2000 compliant was
upgraded or replaced. These software upgrades were off-the-shelf Year 2000
compliant packages. Additionally, we successfully upgraded and tested a Year
2000 compliant version of our corporate accounting and property management
software in December 1998. With respect to our operations level IT hardware, we
have completed the assessment phase of our remediation plan and are 90% complete
(in terms of labor) with all needed renovation. We expect to complete the
renovation and testing phases of our operations level hardware by the third
quarter of 1999.
Our Chief Operating Officer is overseeing our property level compliance
program. We are near completing our inventory of all of our properties' known
information technology and non-information technology systems. This assessment
process is 90% complete and will be completed before the end of the second
quarter of 1999. As part of the inventory process, we are also requesting the
appropriate vendors and manufacturers to certify that their products are Year
2000 compliant. Most have indicated that their products are Year 2000 compliant.
We are approximately 75% complete (in terms of labor) with our identified
renovation needs. This phase is not expected to be completed until the third
quarter. As the final phase of the property level compliance program, we have
been conducting equipment trial runs, where feasible. This validation process is
projected to be completed by the third quarter of 1999.
With respect to Year 2000 issues relating to our customer base, we have not
sought representations from our tenants with respect to their Year 2000
readiness because no one tenant represents more than 3% of our annualized rental
revenue. In addition, since almost all of our suppliers and vendors have
numerous competitors, we believe that there will be no material effect on our
operations due to the
24
<PAGE>
failure or interruption of service by a vendor or service provider on account of
Year 2000 issues. As a result, we have not developed a contingency plan for
dealing with third-party Year 2000 failures.
Costs. To date, the costs directly associated with our Year 2000 efforts
have not been material, and we estimate our future costs to be immaterial as
well.
Risks Associated with the Year 2000 Issue. We do not expect Year 2000
failures to have a material adverse effect on our results of operations or
liquidity because:
o we do not rely on a small number of tenants for a significant portion of
our rental revenue; and
o our remediation plan is expected to be complete prior to the Year 2000.
Nevertheless, this forward-looking statement depends on numerous factors, such
as the continued provision of utility services, and we remain exposed to the
risk of Year 2000 failures. See "Disclosure Regarding Forward-looking
Statements" below.
Our disclosures and announcements concerning our Year 200 programs are
intended to constitute "Year 2000 Readiness Disclosures" as defined in the
recently-enacted Year 2000 Information and Readiness Disclosure Act. The Act
provides added protection from liability for certain public and private
statements concerning an entity's Year 2000 readiness and the Year 2000
readiness of its products and services. The Act also potentially provides added
protection from liability for certain types of Year 2000 disclosures made after
January 1, 1996, and before the date of enactment of the Act.
Possible Environmental Liabilities
In connection with owning or operating our properties, we may be liable for
certain costs due to possible environmental liabilities. Under various laws,
ordinances and regulations, such as the Comprehensive Environmental Response
Compensation and Liability Act, and common law, an owner or operator of real
estate is liable for the costs to remove or remediate certain hazardous or toxic
chemicals or substances on or in the property. Owners or operators are also
liable for certain other costs, including governmental fines and injuries to
persons and property. Such laws often impose liability without regard to whether
the owner or operator knew of, or was responsible for, the presence of the
hazardous or toxic chemicals or 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, treatment or
transportation of hazardous or toxic chemicals or substances may also be liable
for the same types of costs at a disposal, treatment or storage facility,
whether or not that person owns or operates that facility.
Certain environmental laws also impose liability for releasing
asbestos-containing materials. Third parties may seek recovery from owners or
operators of real property for personal injuries associated with
asbestos-containing materials. A number of our properties have
asbestos-containing materials or material that we presume to be
asbestos-containing materials. In connection with owning and operating our
properties, we 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. The presence of hazardous or toxic
chemicals or substances at a site close to a property could require the property
owner to participate in remediation activities or could adversely affect the
value of the property. Contamination from adjacent properties has migrated onto
at least three of our properties; however, based on current information, we do
not believe that any significant remedial action is necessary at these affected
sites.
As of the date hereof, we have obtained Phase I environmental assessments
(and, in certain instances, Phase II environmental assessments) on substantially
all of our in-service properties. These assessments have not revealed, nor are
we aware of, any environmental liability at our properties that we believe would
materially adversely affect our financial position, operations or liquidity
taken as a whole. This
25
<PAGE>
projection, however, could be incorrect depending on certain factors. For
example, material environmental liabilities may have arisen after the
assessments were performed or our assessments may not have revealed all
environmental liabilities or may have underestimated the scope and severity of
environmental conditions observed. There may also be unknown environmental
liabilities at properties for which we have not obtained a Phase I environmental
assessment or have not yet obtained a Phase II environmental assessment. In
addition, we base our assumptions regarding environmental conditions, including
groundwater flow and the existence and source of contamination, on readily
available sampling data. We cannot guarantee that such data is reliable in all
cases. Moreover, we cannot provide any assurances (1) that future laws,
ordinances or regulations will not impose a material environmental liability or
(2) that tenants, the condition of land or operations in the vicinity of our
properties or unrelated third parties will not affect the current environmental
condition of our properties.
Some tenants use or generate hazardous substances in the ordinary course of
their respective businesses. In their leases, we require these tenants to comply
with all applicable laws and to be responsible to us for any damages resulting
from their use of the property. We are not aware of any material environmental
problems resulting from tenants' use or generation of hazardous or toxic
chemicals or substances. We cannot provide any assurances, however, that all
tenants will comply with the terms of their leases or remain solvent. If tenants
do not comply or do not remain solvent, we may at some point be responsible for
contamination caused by such tenants.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in fiscal years beginning after June 15, 1999. The
Statement will require us to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives will either be offset against
the change in fair value of the hedged assets, liabilities or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The fair market value
of our derivatives at December 31, 1998 are discussed in Note 3.
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 noncompliance could result in imposition of
fines by the U.S. government or an award of damages to private litigants.
Although we believe that our properties are substantially in compliance with
these requirements, we may incur additional costs to comply with the ADA.
Although we believe that such costs will not have a material adverse effect on
us, if required changes involve a greater expenditure than we currently
anticipate, our results of operations, liquidity and capital resources could be
materially adversely affected.
Funds From Operations and Cash Available for Distributions
We consider funds from operations ("FFO") to be a useful financial
performance measure of the operating performance of an equity REIT because,
together with net income and cash flows, FFO provides investors with an
additional basis to evaluate the ability of a REIT to incur and service debt and
to fund acquisitions and other capital expenditures. FFO does not represent net
income or cash flows from operating, investing or financing activities as
defined by Generally Accepted Accounting Principles ("GAAP"). It should not be
considered as an alternative to net income as an indicator of our operating
performance or to cash flows as a measure of liquidity. FFO does not measure
whether cash flow is sufficient to fund all cash needs, including principal
amortization, capital improvements and distributions to stockholders. Further,
FFO as disclosed by other REITs may not be comparable to our calculation of FFO,
as
26
<PAGE>
described below. FFO and cash available for distributions should not be
considered as alternatives to net income as an indication of our performance or
to cash flows as a measure of liquidity.
FFO means net income (computed in accordance with generally accepted
accounting principles) excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. In March 1995, the National
Association of Real Estate Investment Trusts ("NAREIT") issued a clarification
of the definition of FFO. The clarification provides that amortization of
deferred financing costs and depreciation of non-real estate assets are no
longer to be added back to net income in arriving at FFO. Cash available for
distribution is defined as funds from operations reduced by non-revenue
enhancing capital expenditures for building improvements and tenant improvements
and lease commissions related to second generation space.
FFO and cash available for distribution for the years ended December 31,
1998, 1997 and 1996 are summarized in the following table:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ----------
(in thousands)
<S> <C> <C> <C>
FFO:
Income before minority interest and extraordinary item ............... $ 151,135 $ 91,552 $46,674
Add (deduct):
Dividends to preferred shareholders ................................ (30,092) (13,117) --
Cost of unsuccessful transactions .................................. 146 -- --
Gain on disposition of assets ...................................... (1,716) -- --
Depreciation and amortization ...................................... 91,397 47,260 21,105
Depreciation on unconsolidated subsidiaries ........................ 974 -- --
Third-party service company cash flow .............................. -- -- 400
--------- --------- --------
FFO before minority interest ...................................... 211,844 125,695 68,179
Cash Available for Distribution:
Add (deduct):
Rental income from straight-line rents ............................. (13,385) (7,035) (2,603)
Amortization of deferred financing costs ........................... 2,598 2,256 1,870
Non-incremental revenue generating capital expenditures:
Building improvements paid ........................................ (9,029) (4,401) (3,554)
Second generation tenant improvements paid ........................ (20,115) (9,889) (3,471)
Second generation lease commissions paid .......................... (13,055) (5,535) (1,426)
--------- --------- --------
Cash available for distribution ................................. $ 158,858 $ 101,091 $58,995
========= ========= ========
Weighted average Common Units outstanding -- diluted ................. 65,132 46,813 30,442
========= ========= ========
Dividend payout ratio:
FFO ................................................................ 64.6% 73.7% 81.9%
========= ========= ========
Cash available from distribution ................................... 86.1% 91.7% 96.0%
========= ========= ========
</TABLE>
Inflation
In the last five years, inflation has not had a significant impact on us
because of the relatively low inflation rate in our 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 our exposure to increases in operating expenses
resulting from inflation. In addition, 83% of the leases are for remaining terms
of less than seven years, which may enable us to
27
<PAGE>
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
Some of the information in this Annual Report on Form 10-K may contain
forward-looking statements. Such statements include, in particular, statements
about our plans, strategies and prospects under the headings "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." You can identify forward-looking statements by our use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. Although we believe that our
plans, intentions and expectations reflected in or suggested by such
forward-looking statements are reasonable, we cannot assure you that our plans,
intentions or expectations will be achieved. When considering such
forward-looking statements, you should keep in mind the following important
factors that could cause our actual results to differ materially from those
contained in any forward-looking statement:
o our markets could suffer unexpected increases in development of office,
industrial and retail properties;
o the financial condition of our tenants could deteriorate; o the costs of
our development projects could exceed our original
estimates;
o we may not be able to complete development, acquisition or joint venture
projects as quickly or on as favorable terms as anticipated;
o we may not be able to lease or release space quickly or on as favorable
terms as old leases;
o we may have incorrectly assessed the environmental condition of our
properties;
o an unexpected increase in interest rates would increase our debt service
costs;
o we may not be able to continue to meet our long-term liquidity
requirements on favorable terms;
o we could lose key executive officers; and
o our southeastern markets may suffer an unexpected decline in economic growth
or increase in unemployment rates.
Given these uncertainties, we caution you not to place undue reliance on
forward-looking statements. We undertake no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances or to reflect the occurrence of
unanticipated events.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The effects of potential changes in interest rates and equity prices are
discussed below. Our market risk discussion includes "forward-looking
statements" and represents an estimate of possible changes in fair value or
future earnings that would occur assuming hypothetical future movements in
interest rates or equity markets. These disclosures are not precise indicators
of expected future losses, but only indicators of reasonably possible losses. As
a result, actual future results may differ materially from those presented. See
"Management's Discussion and Analysis of Results of Operations -- Liquidity and
Capital Resources" and the notes to the consolidated financial statements for a
description of our accounting policies and other information related to these
financial instruments.
Interest Rate Risk
To meet in part our long-term liquidity requirements, we borrow funds at a
combination of fixed and variable rates. Borrowings under the Revolving Loan
bear interest at variable rates. Our long-term debt, which consists of long-term
financings and the issuance of debt securities, typically bears interest at
fixed rates. In addition, we have assumed fixed rate and variable rate debt in
connection with acquiring properties. Our interest rate risk management
objective is to limit the impact of interest rate changes on earnings and cash
flows and to lower our overall borrowing costs. To achieve these objectives,
from time to time we enter into interest rate hedge contracts such as collars,
swaps, caps and treasury lock
28
<PAGE>
agreements in order to mitigate our interest rate risk with respect to various
debt instruments. We do not hold or issue these derivative contracts for trading
or speculative purposes.
Certain Variable Rate Debt. As of December 31, 1998, the Operating
Partnership had approximately $233.8 million of variable rate debt outstanding
that was not protected by interest rate hedge contracts. If the weighted average
interest rate on this variable rate debt is 100 basis points higher or lower in
1999, our interest expense would be increased or decreased approximately $2.3
million for the year ended December 31, 1999. In addition, as of December 31,
1998, we had $80 million of additional variable rate debt outstanding that was
protected by an interest rate collar that effectively keeps the interest rate
within a range of 85 basis points. We do not believe that a 100 basis point
increase or decrease in interest rates would materially affect our interest
expense during 1999 with respect to this $80 million of debt.
Interest Rate Hedge Contracts. For a discussion of our interest rate hedge
contracts in effect at December 31, 1998, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Capitalization." If interest rates increase by 100 basis
points, the aggregate fair market value of these interest rate hedge contracts
as of December 31, 1998 would increase by approximately $22.6 million. If
interest rates decrease by 100 basis points, the aggregate fair market value of
these interest rate hedge contracts as of December 31, 1998 would decrease by
approximately $25.0 million.
In addition, we are exposed to certain losses in the event of
nonperformance by the counterparties under the hedge contracts. We expect the
counterparties, which are major financial institutions, to perform fully under
these contracts. However, if the counterparties were to default on their
obligations under the interest rate hedge contracts, we could be required to pay
the full rates on our debt, even if such rates were in excess of the rates in
the contracts.
Equity Price Risk
On August 28, 1997, the Company entered into a purchase agreement with UBS
AG, London Branch ("UB-LB") involving the sale of 1.8 million shares of Common
Stock and a related forward contract providing for certain purchase price
adjustments. The forward contract (as amended) generally provides that if the
market price (defined as the average closing price of the Common Stock for the
period beginning March 31, 1999 and ending when UB-LB has sold all of the shares
issued under the forward contract) is less than a certain amount, which we refer
to as the "Forward Price," we must pay UB-LB the difference times 1.8 million.
(Similarly, if the market price of a share of Common Stock is above the Forward
Price, UB-LB must pay us the difference in shares of Common Stock.)
On February 28, 1999, the Company and UB-LB amended the forward contract.
Pursuant to the amendment:
o UB-LB applied $12.8 million in Company collateral to "buy down" the Forward
Price by approximately $7.10 (at March 31, 1999, the forward price was
approximately $25.12)
o We issued 161,924 shares of common stock to UB-LB as an interim
settlement payment; and
o UB-LB agreed not to sell any of the shares that we had issued to it until
not later than March 31, 1999.
If the weighted average closing price of one share of Common Stock during
the 60-trading-day period during which UB-LB may sell the shares is 10% lower or
higher than on December 31, 1998, our cost of settling the forward contract
would increase or decrease by approximately $5 million, payable in cash or
shares of Common Stock. The Company has retained the option of repurchasing any
of the shares for cash prior to their distribution by UB-LB.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1 of the financial report included herein.
29
<PAGE>
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 Company is the sole general partner of the Operating Partnership. The
section under the heading "Election of Directors" of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held June 2, 1999 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
The Operating Partnership has no executive officers or directors. As of
December 31, 1998, the only person or group known by us to be holding more than
5% of the Common Units was the Company, which owned 59,478,075 Common Units, or
approximately 86% of the 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.
30
<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, Associated Capital Properties,
Inc. and its shareholders dated August 27, 1997
2.2 (2) Agreement and Plan of Merger by and among the Company, Jackson
Acquisition Corp. and J.C. Nichols Company dated December 22,
1997
2.3 (3) Amendment No. 1 to Agreement and Plan of Merger by and among the
Company, Jackson Acquisition Corp. and J.C. Nichols Company dated
December 22, 1997
3.1 (4) Amended and Restated Articles of Incorporation of the Company
3.2 (5) Amended and Restated Bylaws of the Company
4.1 (5) Specimen of certificate representing shares of Common Stock
4.2 (6) Indenture among AP Southeast Portfolio Partners, L.P., Bankers Trust
Company of California, N.A. and Bankers Trust Company dated as of
March 1, 1994
4.3 (7) Indenture among the Operating Partnership, the Company and First
Union National Bank of North Carolina dated as of December 1, 1996
4.4 (8) Specimen of certificate representing 8 5/8% Series A Cumulative
Redeemable Preferred Shares
4.5 (9) Specimen of certificate representing 8% Series B Cumulative
Redeemable Preferred Shares
4.6 (10) Specimen of certificate representing 8% Series D Cumulative
Redeemable Preferred Shares
4.7 (10) Specimen of Depositary Receipt evidencing the Depositary Shares
each representing 1/10 of an 8% Series D Cumulative Redeemable
Preferred Share
4.8 (10) Deposit Agreement, dated April 23, 1998, between the Company and
First Union National Bank, as preferred share depositary
4.9 (2) Purchase Agreement between the Company, UBS Limited and Union
Bank of Switzerland, London Branch dated as of August 28, 1997
4.10 (2) Forward Stock Purchase Agreement between the Company and Union
Bank of Switzerland, London Branch dated as of August 28, 1997
4.11 (11) Rights Agreement,dated as of October 6, 1997, between the Company
and First Union National Bank, as rights agent
4.12 (12) Credit Agreement among the Operating Partnership, the Company, the
Subsidiaries named therein and the Lenders named therein dated as of
July 3, 1998
4.13 First Amendment to Credit Agreement among the Operating
Partnership, the Company, the Subsidiaries named therein and the
Lenders named therein dated as of July 3, 1998
4.14 Second Amendment to Credit Agreement among the Operating
Partnership, the Company, the Subsidiaries named therein and the
Lenders named therein dated as of July 3, 1998
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Ex. FN Description
- ----------- ----------- ------------------------------------------------------------------------
<S> <C> <C>
4.15 (2) Agreement to furnish certain instruments defining the rights of
long-term debt holders
10.1 (5) Amended and Restated Agreement of Limited Partnership of the
Operating Partnership
10.2 (8) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to Series A
Preferred Units
10.3 (9) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to Series B
Preferred Units
10.4 (10) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to Series D
Preferred Units
10.5 (13) Amendment to Amended and Restated Agreement of Limited
Partnership of the Operating Partnership with respect to certain rights
of limited partners upon a change of control
10.6 (14) Form of Registration Rights and Lockup Agreement among the
Company and the Holders named therein, which agreement is signed
by all Common Unit holders
10.7 (15) Amended and Restated 1994 Stock Option Plan
10.8 (2) 1997 Performance Award Plan
10.9 (16) Employment Agreement among the Company, the Operating
Partnership and John W. Eakin
10.10 (17) Employment Agreement among the Company, the Operating
Partnership and Gene H. Anderson
10.11 (1) Employment Agreement among the Company, the Operating
Partnership and James R. Heistand
10.12 Form of Executive Supplemental Employment Agreement between the
Company and Named Executive Officers
10.13 (18) 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 (16) Form of warrants to purchase Common Stock of the Company issued
to W. Brian Reames, John W. Eakin and Thomas S. Smith
10.15 (2) 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 of the Operating Partnership
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
</TABLE>
- ----------
(1) Filed as part of the Company's Current Report on Form 8-K dated August 27,
1997 and incorporated herein by reference.
(2) Filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference.
(3) Filed as part of the Company's Current Report on Form 8-K April 29, 1998
and incorporated herein by reference.
(4) Filed as part of the Company's Current Report on Form 8-K dated 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 and articles
supplementary filed as part of the Company's Current Report on Form 8-K
dated April 20, 1998, each of which is incorporated herein by reference.
(5) Filed as part of Registration Statement 33-76952 with the SEC and
incorporated herein by reference.
32
<PAGE>
(6) Filed by Crocker Realty Trust, Inc. as part of Registration Statement No.
33-88482 filed with the SEC and incorporated herein by reference.
(7) Filed as part of the Operating Partnership's Current Report on Form 8-K
dated December 2, 1996 and incorporated herein by reference.
(8) Filed as part of the Company's Current Report on Form 8-K dated February
12, 1997 and incorporated herein by reference.
(9) Filed as part of the Company's Current Report on Form 8-K dated September
25, 1997 and incorporated herein by reference.
(10) Filed as part of the Company's Current Report on Form 8-K dated April 20,
1998 and incorporated herein by reference.
(11) Filed as part of the Company's Current Report on Form 8-K dated October 4,
1997 and incorporated herein by reference.
(12) Filed as part of the Company's Current Report on Form 8-K dated July 3,1998
and incorporated herein by reference.
(13) Filed as part of the Operating Partnership's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 and incorporated herein by reference.
(14) Filed as part of the Company's Annual Report on Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference.
(15) Filed as part of the Company's proxy statement on Schedule 14A relating to
the 1997 Annual Meeting of Stockholders.
(16) Filed as part of the Company's Current Report on Form 8-K dated April 1,
1996 and incorporated herein by reference.
(17) Filed as part of the Company's Current Report on Form 8-K dated January 9,
1997 and incorporated herein by reference.
(18) Filed as part of Registration Statement 33-88364 with the SEC and
incorporated herein by reference.
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 November 20, 1998, the Operating Partnership filed a current report on
Form 8-K, dated November 20, 1998, reporting under items 5 and 7 of the Form the
incorporation of a consent of independent auditors into the Operating
Partnership's currently effective registration statement and related
prospectuses.
On December 4, 1998, the Operating Partnership filed a current report on
Form 8-K, dated November 30, 1998, reporting under item 5 of the Form that it
had canceled a letter of intent to sell certain non-core office properties in
Florida.
On December 23, 1998, the Operating Partnership filed a current report on
Form 8-K, dated June 18, 1998, setting forth under item 7 audited financial
statements of Landmark Center and Shelton Properties.
33
<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, 1999.
HIGHWOODS REALTY 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, 1999
- ------------------------------------- Directors of the General
O. Temple Sloan, Jr. Partner
/s/ RONALD P. GIBSON President, Chief Executive March 31, 1999
- ------------------------------------- Officer and Director of the
Ronald P. Gibson General Partner
/s/ JOHN L. TURNER Vice Chairman of the Board March 31, 1999
- ------------------------------------- and Chief Investment
John L. Turner Officer of the General
Partner
/s/ GENE H. ANDERSON Senior Vice President and March 31, 1999
- ------------------------------------- Director of the General
Gene H. Anderson Partner
/s/ JAMES R. HEISTAND Senior Vice President and March 31, 1999
- ------------------------------------- Director of the General
James R. Heistand Partner
/s/ THOMAS W. ADLER Director of the General Partner March 31, 1999
- -------------------------------------
Thomas W. Adler
/s/ KAY NICHOLS CALLISON Director of the General March 31, 1999
- ------------------------------------- Partner
Kay Nichols Callison
/s/ WILLIAM E. GRAHAM, JR. Director of the General Partner March 31, 1999
- -------------------------------------
William E. Graham, Jr.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- --------------------------------- ---------------
<S> <C> <C>
/s/ L. GLENN ORR, JR. Director of the General Partner March 31, 1999
- -------------------------------------
Glenn Orr, Jr.
/s/ WILLARD H. SMITH JR. Director of the General Partner March 31, 1999
- -------------------------------------
Willard H. Smith Jr.
/s/ STEPHEN TIMKO Director of the General Partner March 31, 1999
- -------------------------------------
Stephen Timko
/s/ CARMAN J. LIUZZO Vice President and Chief March 31, 1999
- ------------------------------------- Financial Officer (Principal
Carman J. Liuzzo Financial Officer and
Principal Accounting
Officer) and Treasurer of the
General Partner
</TABLE>
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Highwoods Realty Limited Partnership
Report of Independent Auditors ......................................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 ........................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1998, 1997 and 1996.. F-4
Consolidated Statements of Partner's Capital for the Years Ended December 31, 1998, 1997
and 1996 .............................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and
1996 .................................................................................. F-6
Notes to Consolidated Financial Statements ............................................. F-8
Schedule III -- Real Estate and Accumulated Depreciation ............................... F-27
</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 REALTY LIMITED PARTNERSHIP
We have audited the accompanying consolidated balance sheets of Highwoods
Realty Limited Partnership (a majority-owned subsidiary of Highwoods Properties,
Inc.) as of December 31, 1998 and 1997, and the related consolidated statements
of income, partners' capital, and cash flows for each of the three years in the
period ended December 31, 1998. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Highwoods
Realty Limited Partnership at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 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 16, 1999, except for Note 15 as to which
the date is March 15, 1999
F-2
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Balance Sheets
(Dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
December 31,
-----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Assets
Real estate assets, at cost:
Land & improvements ............................................... $ 538,814 $ 341,623
Buildings and tenant improvements ................................. 3,173,825 2,183,454
Development in process ............................................ 189,465 95,387
Land held for development ......................................... 150,622 64,454
Furniture, fixtures and equipment ................................. 7,665 3,339
---------- ----------
4,060,391 2,688,257
Less -- accumulated depreciation .................................. (168,508) (87,046)
---------- ----------
Net real estate assets ............................................ 3,891,883 2,601,211
Property held for sale ............................................ 131,262 --
Cash and cash equivalents ........................................... 30,696 8,816
Restricted cash ..................................................... 24,263 9,341
Accounts receivable net of allowance of $1,688 and $555
at December 31, 1998 and 1997, respectively ....................... 27,644 17,426
Advances to related parties ......................................... 10,420 9,072
Notes receivable .................................................... 12,865 --
Accrued straight-line rents receivable .............................. 27,194 13,033
Investment in unconsolidated affiliates ............................. 15,234 --
Other assets:
Deferred leasing costs ............................................ 45,785 21,688
Deferred financing costs .......................................... 38,750 22,294
Prepaid expenses and other ........................................ 15,162 17,575
---------- ----------
99,697 61,557
Less -- accumulated amortization .................................. (23,458) (13,216)
---------- ----------
76,239 48,341
---------- ----------
$4,247,700 $2,707,240
========== ==========
Liabilities and partners' capital
Mortgages and notes payable ......................................... $1,906,216 $ 978,558
Accounts payable, accrued expenses and other liabilities ............ 125,168 52,152
---------- ----------
Total liabilities ................................................. 2,031,384 1,030,710
Redeemable units:
Class A Common Units, 10,111,978 and 10,256,936 outstanding
at December 31, 1998 and 1997, respectively ...................... 260,383 381,631
Class B Common Units, 291,756 and 187,528 outstanding
at December 31, 1998 and 1997, respectively ...................... 7,513 6,974
Series A Preferred Units, 125,000 and 125,000 outstanding
at December 31, 1998 and 1997, respectively ...................... 121,809 121,809
Series B Preferred Units, 6,900,000 and 6,900,000 outstanding
at December 31, 1998 and 1997, respectively ...................... 166,346 166,346
Series D Preferred Units, 400,000 and 0 outstanding
at December 31, 1998 and 1997, respectively ...................... 96,842 --
Partners' capital:
Class A Common Units:
General partner Common Units outstanding, 690,955 and 566,108
at December 31, 1998 and 1997, respectively .................... 15,634 9,997
Limited partner Common Units outstanding, 58,292,597 and
45,783,071 at December 31, 1998 and 1997, respectively ......... 1,547,789 989,773
---------- ----------
Total partners' capital ........................................ 1,563,423 999,770
---------- ----------
$4,247,700 $2,707,240
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Income
(Dollars in thousands, except per unit amounts)
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Revenue:
Rental income ...................................................... $ 496,739 $ 266,933 $ 125,987
Equity in net losses of unconsolidated affiliates .................. (207) -- --
Gain on disposition of assets ...................................... 1,716 -- --
Interest and other income .......................................... 13,230 6,232 6,315
----------- ----------- -----------
511,478 273,165 132,302
Operating expenses:
Rental property .................................................... 154,211 76,743 33,657
Depreciation and amortization ...................................... 91,397 47,260 21,105
Interest expense:
Contractual ....................................................... 91,361 45,138 23,360
Amortization of deferred financing costs .......................... 2,598 2,256 1,870
----------- ----------- -----------
93,959 47,394 25,230
General and administrative ......................................... 20,776 10,216 5,636
----------- ----------- -----------
Income before extraordinary item ................................... 151,135 91,552 46,674
----------- ----------- -----------
Extraordinary item -- loss on early extinguishment
of debt ............................................................ (387) (6,945) (2,432)
----------- ----------- -----------
Net income ......................................................... 150,748 84,607 44,242
Dividends on preferred units ......................................... (30,092) (13,117) --
----------- ----------- -----------
Net income available for Class A Common Units ...................... $ 120,656 $ 71,490 $ 44,242
=========== =========== ===========
Net income (loss) per Common Unit -- Basic:
Income before extraordinary item ................................... $ 1.87 $ 1.69 $ 1.56
Extraordinary item -- loss on early extinguishment of debt ......... $ (.01) $ (0.15) $ (0.08)
----------- ----------- -----------
Net income ......................................................... $ 1.86 $ 1.54 $ 1.48
=========== =========== ===========
Net income (loss) per Common Unit -- Diluted: ........................
Income before extraordinary item ................................... $ 1.86 $ 1.68 $ 1.55
Extraordinary item -- loss on early extinguishment of debt ......... $ (.01) $ (0.15) $ (0.08)
----------- ----------- -----------
Net income ......................................................... $ 1.85 $ 1.53 $ 1.47
=========== =========== ===========
Weighted average Common Units outstanding -- Basic:
Class A Common Units:
General Partner ................................................... 645,552 464,218 298,520
Limited Partners .................................................. 63,909,671 45,786,572 29,553,480
Class B Common Units:
Limited Partners .................................................. 291,756 171,000 --
----------- ----------- -----------
Total .............................................................. 64,846,979 46,421,790 29,852,000
=========== =========== ===========
Weighted average Common Units outstanding -- Diluted:
Class A Common Units:
General Partner ................................................... 648,403 468,129 300,739
Limited Partners .................................................. 64,191,905 46,173,816 29,773,139
Class B Common Units:
Limited Partners .................................................. 291,756 171,000 --
----------- ----------- -----------
Total .............................................................. 65,132,064 46,812,945 30,073,878
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Partners' Capital
(Dollars in thousands)
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Class A Common Unit
------------------------
General Limited Total
Partner's Partners' Partners'
Capital Capital Capital
----------- ------------ ------------
<S> <C> <C> <C>
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 ..................... 3,452 (3,452) --
--
-------- ---------- -------
Balance at December 31, 1997 ............................... $ 9,997 $ 989,773 $ 999,770
Offering proceeds .......................................... -- 405,912 405,912
Distributions paid ......................................... (1,369) (135,522) (136,891)
Preferred distributions paid ............................... (301) (29,791) (30,092)
Net income ................................................. 1,507 149,241 150,748
Adjustments of redeemable Common Unit to fair value ........ 1,387 137,213 138,600
Conversion of redeemable Common Unit to Common Shares ...... 408 40,347 40,755
Redemption of Common Units ................................. (54) (5,325) (5,379)
Transfer of limited partners' interest ..................... 4,059 (4,059) --
-------- ---------- ----------
Balance at December 31, 1998 ............................... 15,634 1,547,789 1,563,423
======== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net income ..................................................... $ 150,748 $ 84,607 $ 44,242
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ................................................. 84,738 44,120 20,562
Amortization ................................................. 9,257 5,396 3,244
Loss on early extinguishment of debt ......................... 387 6,945 2,432
Gain on sale of properties ................................... (1,716) -- --
Changes in operating assets and liabilities:
Accounts receivable ......................................... (7,139) (8,605) (1,437)
Prepaid expenses and other assets ........................... 393 (3,263) (776)
Accrued straight-line rents receivable ...................... (14,161) (6,848) (2,778)
Accounts payable, accrued expenses and other liabilities..... 38,972 4,993 4,389
---------- ---------- ----------
Net cash provided by operating activities ................. 261,479 127,346 69,878
---------- ---------- ----------
Investing activities:
Proceeds from disposition of real estate assets ................ 26,347 1,419 900
Additions to real estate assets ................................ (943,048) (464,618) (181,444)
Advances to related parties .................................... (1,348) (6,666) (1,132)
Other assets and notes receivable .............................. (27,219) (18,001) (3,385)
Cash from contributed net assets ............................... 55,064 -- 20,711
Cash paid in exchange for partnership net assets ............... (63,177) (35,390) (322,276)
---------- ---------- ----------
Net cash used in investing activities ....................... (953,381) (523,256) (486,626)
---------- ---------- ----------
Financing activities:
Distributions paid ............................................. (136,891) (87,448) (55,075)
Payment of preferred unit dividends ............................ (30,092) (11,720) --
Net proceeds from contributed capital -- Preferred Units ....... 197,746 288,155 --
Net proceeds from contributed capital -- Common Units .......... 96,842 345,325 406,901
Payment of prepayment penalties ................................ (387) (6,945) (1,184)
Borrowings on revolving loans .................................. 873,000 563,500 307,500
Repayment of revolving loans ................................... (846,500) (264,000) (299,000)
Proceeds from mortgages and notes payable ...................... 745,356 100,000 213,500
Repayment of mortgages and notes payable ....................... (170,304) (532,481) (141,216)
Payment of deferred financing costs ............................ (14,988) (278) (10,898)
---------- ---------- ----------
Net cash provided by financing activities ................... 713,782 394,108 420,528
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ........... 21,880 (1,802) 3,780
Cash and cash equivalents at beginning of the period ........... 8,816 10,618 6,838
---------- ---------- ----------
Cash and cash equivalents at end of the period ................. $ 30,696 $ 8,816 $ 10,618
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest ......................................... $ 63,664 $ 51,283 $ 26,039
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows -- Continued
(Dollars in thousands)
For the Years Ended December 31, 1998, 1997 and 1996
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>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Real estate assets, net .......................................... $465,078 $782,136 $611,678
Cash and cash equivalents ........................................ 55,064 -- 20,711
Restricted cash .................................................. -- 2,727 11,476
Tenant leasing costs, net ........................................ -- 131 --
Deferred financing costs, net .................................... -- 227 3,871
Investment in unconsolidated affiliates .......................... 12,364 -- --
Notes receivable ................................................. 29,176 -- --
Accounts receivable and other .................................... 6,634 913 1,635
-------- -------- --------
Total assets ................................................... 568,316 786,134 649,371
-------- -------- --------
Liabilities:
Mortgages and notes payable ...................................... 326,106 555,663 244,129
Accounts payable, accrued expenses and other liabilities ......... 34,044 19,527 19,142
-------- -------- --------
Total liabilities .............................................. 360,150 575,190 263,271
-------- -------- --------
Net assets .................................................... 208,166 $210,944 $386,100
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of the Operating Partnership
Highwoods Realty Limited Partnership (formerly 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") which operates in the southeastern and
midwestern United States. The Operating Partnership's assets include 658
in-service office, industrial and retail properties; 2,325 apartment units;
1,417 acres of undeveloped land suitable for future development; and an
additional 59 properties under development.
The Company conducts substantially all of its activities through, and
substantially all of its interests in the properties are held directly or
indirectly by, the Operating Partnership. The Company is the sole general
partner of the Operating Partnership. At December 31, 1998, the Company owned
86% of the common partnership interests ("Common Units") in the Operating
Partnership. Limited partners (including certain officers and directors of the
Company) own the remaining Common Units. Holders of Common Units may redeem them
for the cash value of one share of the Company's common stock, $.01 par value
(the "Common Stock'), or, at the Company's option, one share (subject to certain
adjustments) of Common Stock.
The Operating Partnership also provides leasing, property management, real
estate development, construction and miscellaneous services for its properties
as well as for third parties. The Operating Partnership conducts its third-party
fee-based services through Highwoods Services, Inc., a subsidiary of the
Operating Partnership accounted for using the equity method of accounting, and
through Highwoods/Tennessee Properties, Inc., a wholly owned subsidiary of the
Company.
Generally one year after issuance, 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.
Basis of Presentation
The consolidated financial statements include the accounts of the Operating
Partnership and its majority controlled affiliates. All significant intercompany
balances and transactions have been eliminated in the consolidated financial
statements.
The extraordinary loss represents the write-off of loan origination fees
and prepayment penalties paid on the early extinguishment of debt and is shown
net of the minority interest's share in the loss.
F-8
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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.
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 certain 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 Operating Partnership is required to maintain a
minimum contingency reserve account balance of $7,000,000. At December 31, 1998,
the account balances were $9,072,421, including $7,120,655 in the contingency
reserve account. At December 31, 1997, the account balances were $8,624,090,
including $7,069,186 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, 1998, and 1997, $2,672,448
and $717,350, respectively, were escrowed for real estate taxes.
Investment in Unconsolidated Affiliates
Investment in unconsolidated affiliates are accounted for on the equity
method and reflect the Operating Partnership's share of income or loss of the
affiliate, reduced by distributions received and increased by contributions
made.
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 provide for the reimbursement of real estate taxes, insurance,
advertising and certain common area maintenance 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.
F-9
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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 because such taxes, if any, are
the responsibility of the individual partners.
Concentration of Credit Risk
Management of the Operating Partnership performs ongoing credit evaluations
of its tenants. The majority-owned properties (excluding apartment units) are
leased to approximately 4,400 tenants in 20 geographic locations. The Operating
Partnership tenants 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 interest rate hedge contracts such
as swaps, caps and 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 treasury lock agreements to hedge
interest rate risk on anticipated debt offerings. These anticipatory hedges are
designated 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.
The Operating Partnership is exposed to certain losses in the event of
non-performance by the counterparties under the interest rate hedge contracts.
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 loans and
the variable rate mortgages, even if such rate were in excess of the rate in the
interest rate hedge contracts. The Operating Partnership would not realize a
material loss as of December 31, 1998, in the event of non-performance by any
one counterparty. Additionally, the Operating Partnership limits the amount of
credit exposure with any one institution.
F-10
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
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 9, 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.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("FAS 130"). FAS 130 requires that total comprehensive income and
comprehensive income per share be disclosed with equal prominence as net income
and earnings per share. Comprehensive income is defined as changes in
stockholder's equity exclusive of transactions with owners such as capital
contributions and dividends. The Operating Partnership adopted this Standard in
1998. The Operating Partnership did not report any comprehensive income items in
any of the years presented.
Segment Reporting
Effective January 1, 1998, the Operating Partnership adopted Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("FAS 131"), which superceded Statement of
Financial Accounting Standards No. 14, Financial Reporting for Segments of a
Business Enterprise. FAS 131 establishes standards for the public reporting of
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. The adoption of FAS 131 did not affect the Operating
Partnership's net income or financial position.
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted in fiscal
years beginning after June 15, 1999. The Statement will require the Operating
Partnership to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The fair market value of the Operating
Partnership's derivatives at December 31, 1998 are discussed in Note 3.
F-11
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
Reclassifications
Certain amounts in the December 31, 1996 Financial Statements have been
reclassified to conform to the December 31, 1997 presentation. These
reclassifications had no material effect on net income or partners' capital
as previously reported.
2. INVESTMENT IN UNCONSOLIDATED AFFILIATES
As a result of the Company's merger with J.C. Nichols Company, the
Operating Partnership had investments accounted for under the equity method of
accounting which consisted of the following at December 31, 1998:
<TABLE>
<CAPTION>
Percent owned
--------------
<S> <C>
Dallas County Partners ..................... 50.0%
Dallas County Partners II .................. 50.0
Dallas County Partners III L.C ............. 50.0
Fountain Three ............................. 50.0
Terrace Place Partners ..................... 50.0
Meredith Drive Associates L.P .............. 49.5
Board of Trade Investment Company .......... 49.0
Raphael Hotel Group L.P .................... 5.0
</TABLE>
Selected aggregate financial data for unconsolidated affiliates for 1998
and 1997 is presented below:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
(in thousands)
<S> <C> <C>
Total assets ....................... $100,037 $96,667
Total liabilities .................. $ 95,098 $95,364
Net income ......................... $ 1,404 $ 2,092
</TABLE>
F-12
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. MORTGAGES AND NOTES PAYABLE
Mortgages and notes payable consisted of the following at December 31,
1998, and 1997:
<TABLE>
<CAPTION>
1998 1997
------------- -----------
(in thousands)
<S> <C> <C>
Mortgage notes payable:
7.9% mortgage note due 2001 ................... $ 133,000 $140,000
9.0% mortgage note due 2005 ................... 39,043 39,630
8.1% mortgage note due 2005 ................... 30,454 30,951
8.0% mortgage note due 2007 ................... 42,842 43,465
8.0% mortgage note due 2013 ................... 55,754 --
6.5% to 13.0% mortgage notes due between
1999 and 2022 ................................ 235,234 78,330
Variable rate Industrial Revenue Bonds due
between 1999 and 2015 ........................ 70,800 --
Variable rate mortgage notes due 2021 ......... 1,975 --
---------- --------
$ 609,102 $332,376
---------- --------
Unsecured indebtedness:
6.75% notes due 2003 .......................... $ 100,000 $100,000
8.0% notes due 2003 ........................... 150,000 --
7.0% notes due 2006 ........................... 110,000 110,000
7.125% notes due 2008 ......................... 100,000 --
8.125% notes due 2009 ......................... 50,000 --
7.19% notes due 2011 .......................... 100,000 100,000
6.835% notes due 2013 ......................... 125,000 --
7.5% notes due 2018 ........................... 200,000 --
Variable rate note due 2002 ................... 21,114 21,682
Revolving loan due 1998 ....................... -- 50,000
Revolving loan due 1999 ....................... -- 264,500
Revolving loan due 2001 ....................... 341,000 --
---------- --------
$1,297,114 $646,182
---------- --------
Total .................................. $1,906,216 $978,558
========== ========
</TABLE>
Secured Indebtedness
Mortgage notes payable were secured by real estate with an aggregate
carrying value of $1.2 billion at December 31, 1998.
The 7.9% mortgage note due 2001 is secured by 45 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 $133 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, among the Financing Partnership, Bankers
Trust Company of California, N.A. and Bankers Trust Company.
F-13
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. MORTGAGES AND NOTES PAYABLE -- (Continued)
The Financing Partnership may make optional principal payments on 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.
Unsecured Indebtedness
On June 24, 1997, a trust formed by the Operating Partnership sold $100
million of Exercisable Put Option Securities due June 15, 2004 ("X-POS"), which
represent fractional undivided beneficial interest in the trust. The assets of
the trust consist of, among other things, $100 million of Exercisable Put Option
Notes due June 15, 2011 (the "Put Option Notes"), issued by the Operating
Partnership. The Put Option Notes bear an interest rate of 7.19%, representing
an effective borrowing cost of 7.09% from the date of issuance through June 15,
2004, net of a related put option and certain interest rate hedge contract
costs. Under certain circumstances, the Put Option Notes could become subject to
early maturity on June 15, 2004.
On February 2, 1998, the Operating Partnership sold $125 million of
Mandatory Par Put Remarketed Securities ("MOPPRS") due February 1, 2013. The
MOPPRS bear an interest rate of 6.835%, representing an effective borrowing cost
of 6.31% from the date of issuance through January 31, 2003 (the "Remarketing
Date"), net of a related remarketing option. Under certain circumstances, the
MOPPRS could become subject to early maturity on the Remarketing Date.
During 1998, the Operating Partnership obtained a $600 million unsecured
revolving loan (as amended, the "Revolving Loan"). The Revolving Loan matures in
July 2001 and replaced the Operating Partnership's two previously existing
revolving loans aggregating $430 million. The Revolving Loan carries an interest
rate based upon the Operating Partnership's senior unsecured credit rating. The
Revolving Loan also includes a $300 million competitive bid sub-facility. At
December 31, 1998, the effective interest rate for borrowing under the Revolving
Loan was 6.16%. The Operating Partnership had $152.5 of borrowing availability
under the Revolving Loan at December 31, 1998. The terms of the Revolving Loan
require the Operating Partnership to pay an annual facility fee equal to .15% of
the aggregate amount of the Revolving Loan and include certain restrictive
covenants which limit, among other things, dividend payments, and which require
compliance with certain financial ratios and measurements. At December 31, 1998,
the Operating Partnership was in compliance with these covenants.
Interest Rate Hedge Contracts
To meet in part its long-term liquidity requirements, the Operating
Partnership borrows funds at a combination of fixed and variable rates.
Borrowings under the Revolving Loan bear interest at variable rates. The
Operating Partnership's long-term debt, which consists of long-term financings
and the issuance of debt securities, typically bears interest at fixed rates. In
addition, the Operating Partnership has assumed fixed rate and variable rate
debt in connection with acquiring properties. The Operating Partnership's
interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs. To
achieve these objectives, from time to time the Operating Partnership enters
into interest rate hedge contracts such as collars, swaps, caps and treasury
lock agreements in order to mitigate its interest rate risk with respect to
various debt instruments. The Operating Partnership does not hold or issue these
derivative contracts for trading or speculative purposes.
F-14
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. MORTGAGES AND NOTES PAYABLE -- (Continued)
The following table sets forth information regarding the Operating
Partnership's interest rate hedge contracts as of December 31, 1998:
<TABLE>
<CAPTION>
Notional Maturity Fixed Fair Market
Type of Hedge Amount Date Reference Rate Rate Value
- --------------- ---------- ---------- ----------------------- ------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Treasury Lock $50,000 3/10/99 10-Year Treasury 5.631% $ (3,708)
Treasury Lock 100,000 7/1/99 10-Year Treasury 5.674 (7,313)
Treasury Lock 100,000 10/1/99 10-Year Treasury 5.725 (7,394)
Swap 100,000 10/1/99 3-Month LIBOR 4.970 93
Swap 21,112 6/10/02 1-Month LIBOR + 0.75% 7.700 (733)
Collar 80,000 10/15/01 1-Month LIBOR 5.40-6.25 (1,376)
</TABLE>
The interest rate on all of the Operating Partnership's variable rate debt
is adjusted at one- and three-month intervals, subject to settlements under
these contracts. Net payments made to counterparties under the Operating
Partnership's swaps, collars and caps were $48,000 in 1998 and $47,000 in 1997
and were recorded as increases to interest expense. Payments received from
counterparties were $167,000 in 1996 and were recorded as a reduction of
interest expense.
In addition, the Operating Partnership is exposed to certain losses in the
event of non-performance by the counterparties under the interest rate hedge
contracts. The Operating Partnership expects the counterparties, which are major
financial institutions, to perform fully under these contracts. However, if the
counterparties were to default on their obligations under the interest rate
hedge contracts, the Operating Partnership could be required to pay the full
rates on its debt, even if such rates were in excess of the rates in the
contracts.
Other Information
The aggregate maturities of the mortgage and notes payable at December 31,
1998 are as follows:
<TABLE>
<CAPTION>
Year of Maturity Principal Amount
- -------------------------------- -----------------
(in thousands)
<S> <C>
1999 ......................... $ 44,387
2000 ......................... 29,736
2001 ......................... 493,456
2002 ......................... 66,013
2003 ......................... 265,576
Thereafter ................... 1,007,048
----------
$1,906,216
==========
</TABLE>
Total interest capitalized was $17,968,000 in 1998, $7,238,000 in 1997, and
$2,935,000 in 1996.
4. 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 officers and employees if certain Operating
Partnership performance objectives are achieved. The amount of the bonus to
participating officers and employees is based on a formula determined for each
employee by
F-15
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
4. EMPLOYEE BENEFIT PLANS -- (Continued)
the executive 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
executive 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 Operating Partnership 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.
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
1998, 1997 and 1996, the Company contributed $588,000, $353,000, and $160,000,
respectively to the Plan. Administrative expenses of the plan are paid by the
Company. The Company's obligations under and related to the 401(k) savings plan
are reimbursed by the Operating Partnership.
Employee Stock Purchase Plan
In August 1997, the Company instituted an Employee Stock Purchase Plan 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.
Employees purchased 24,046 and 5,839 shares of Common Stock under the Employee
Stock Purchase Plan during the years ended December 31, 1998 and 1997,
respectively. With each share of Common Stock issued under the Employee Stock
Purchase Plan, the Operating Partnership issues one Common Unit to the Company
in exchange for the price paid by the employee for the share.
5. 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 December 31, 1998, are as
follows (in thousands):
F-16
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
5. RENTAL INCOME -- (Continued)
<TABLE>
<S> <C>
1999 ...................... $ 493,190
2000 ...................... 455,254
2001 ...................... 388,659
2002 ...................... 321,121
2003 ...................... 252,459
Thereafter ................ 936,741
----------
$2,847,424
==========
</TABLE>
6. 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, are due on demand and totaled $10,420,000 at December 31, 1998, and
$7,022,000 at December 31, 1997. The Operating Partnership recorded interest
income from these advances of $826,000, $142,000 and $91,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
On December 8, 1998, the Operating Partnership purchased the Bluegrass
Valley office development project from a limited liability company controlled by
an executive officer and director of the Company for approximately $2.5 million.
On October 1, 1997, the Operating Partnership sold the Ivy Distribution
Center in Winston-Salem, North Carolina, to a limited liability company
controlled by an executive officer and director of the 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 bore interest at 8% per annum and was paid in full on October
8, 1998. The Operating Partnership recorded interest income of $123,000 and
$41,000 for the years ended December 31, 1998 and 1997, respectively.
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.
7. PARTNER'S CAPITAL
Distributions
Distributions paid on Common Units (including Redeemable Class A and Class
B Common Units) were $2.10, $1.98 and $1.86 per Common Unit for the years ended
December 31, 1998, 1997 and 1996 respectively.
On January 25, 1999, the Board of Directors declared a Common Unit
distribution of $.54 per Common Unit payable on February 17, 1999, to Common
Unitholders of record on February 4, 1999. 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
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
F-17
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
7. PARTNER'S CAPITAL -- (Continued)
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 $86.25 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
Preferred Units to the Company. The Series B Preferred Units are non-voting and
have a liquidation preference of $25 per unit 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 will 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 and
unpaid distributions) is payable solely out of the sale proceeds of other units,
which may include other preferred units.
On April 23, 1998, the Operating Partnership issued 400,000 Series D
Preferred Units to the Company. The Series D Preferred Units are non-voting and
have a liquidation preference of $250 per unit for an aggregate liquidation
preference of $100 million plus accrued and unpaid distributions. The net
proceeds (after underwriting commission and other offering costs) of the Series
D Preferred Units issued were $96.8 million. The Company is entitled to receive
cumulative preferential cash distributions at a rate of 8% of the liquidation
preference per annum (equivalent to $20.00 per unit). On or after April 23,
2003, the Series D Preferred Units will be redeemed for cash upon the redemption
of the corresponding Series D 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.
8. 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.
F-18
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
8. EARNINGS PER COMMON UNIT -- (Continued)
The following table sets forth the computation of basic and diluted
earnings per Common Unit:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- -------------
(dollars in thousands, except per unit amounts)
<S> <C> <C> <C>
Numerator:
Income before extraordinary item ....................... $ 151,135 $ 91,552 $ 46,674
Non-convertible preferred unit dividends ............... (30,092) (13,117) --
Extraordinary item ..................................... (387) (6,945) (2,432)
----------- ----------- -----------
Numerator for basic earnings per Common
Unit -- income available to Common Unitholders ......... $ 120,656 $ 71,490 $ 44,242
Numerator for diluted earnings per share -- income
available to Common Unitholders ........................ $ 120,656 $ 71,490 $ 44,242
Denominator:
Denominator for basic earnings per Common
Unit -- weighted-average shares ........................ 64,847 46,422 29,852
Effect of dilutive securities:
Employee stock options ................................ 240 318 190
Warrants .............................................. 45 73 32
----------- ----------- -----------
Dilutive potential Common Units ........................ 285 391 222
Denominator for diluted earnings per Common
Unit -- adjusted weighted average Common Units
and assumed conversions ................................ 65,132 46,813 30,074
Basic earnings per Common Unit ........................... $ 1.86 $ 1.54 $ 1.48
=========== =========== ===========
Diluted earnings per Common Unit ......................... $ 1.85 $ 1.53 $ 1.47
=========== =========== ===========
</TABLE>
For additional disclosures regarding the outstanding preferred Units, the
employee stock options and the warrants, see Notes 6 and 8.
9. STOCK OPTIONS AND WARRANTS
As of December 31, 1998, 5,838,627 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 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 Company has
elected to follow APB 25 and related interpretations in accounting for its
employee stock options because the Company 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
Company's employee
F-19
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. STOCK OPTIONS AND WARRANTS -- (Continued)
stock options equals the market price of the underlying stock on the date of
grant, the Company 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 Company used to develop its pro forma disclosures.
However, as previously noted, the Company 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 the options granted in 1998
was estimated at the date of grant using the following weighted average
assumptions: risk-free rates ranging between 3.29% and 6.01%, dividend yield of
9.0% and a weighted average expected life of the options of five years. The fair
value of the 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 value of the 1996 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 Company's stock option plans been determined based on
the fair value at the date of grant for awards in 1998, 1997 and 1996 consistent
with the provisions of SFAS 123, the Company's net income and net income per
share would have decreased to the pro forma amounts indicated below (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Year ended
December 31
-------------------------------------------
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Net income -- as reported ............................. $ 120,656 $ 71,490 $ 44,242
Net income -- pro forma ............................... $ 118,491 $ 70,311 $ 43,784
Net income per share -- basic (as reported) ........... $ 1.88 $ 1.54 $ 1.48
Net income per share -- diluted (as reported) ......... $ 1.87 $ 1.53 $ 1.47
Net income per share -- basic (pro forma) ............. $ 1.83 $ 1.51 $ 1.47
Net income per share -- diluted (pro forma) ........... $ 1.82 $ 1.50 $ 1.46
</TABLE>
F-20
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. STOCK OPTIONS AND WARRANTS -- (Continued)
The following table summarizes information about employees' and Board of
Directors' stock options outstanding at December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------
Weighted
Average
Number Exercise
of Shares Price
------------- -----------
<S> <C> <C>
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 32.90
Options canceled ...................... (76,040) 22.20
Options exercised ..................... (117,428) 21.84
--------- --------
Balances at December 31, 1997 ......... 3,322,997 30.40
Options granted ....................... 737,754 27.21
Options canceled ...................... (11,800) 31.11
Options exercised ..................... (25,400) 21.98
--------- --------
Balances at December 31, 1998 ......... 4,023,551 $ 29,83
========= ========
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
-------------------------
Weighted
Average
Number of Exercise
Shares Price
----------- -----------
<S> <C> <C>
December 31, 1996 ......... 225,350 $ 21.74
December 31, 1997 ......... 686,870 $ 30.94
December 31, 1998 ......... 1,315,898 $ 26.65
</TABLE>
Exercise prices for options outstanding as of December 31, 1998, ranged
from $9.54 to $35.50. The weighted average remaining contractual life of those
options is 7.7 years. Using the Black-Scholes options valuation model, the
weighted average fair value of options granted during 1998, 1997 and 1996 was
$2.98, $3.23 and $3.10, 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>
F-21
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
9. STOCK OPTIONS AND WARRANTS -- (Continued)
The warrants granted in February 1995, April 1996 and December 1997 expire
10 years from the date of issuance. All warrants are exercisable from the date
of issuance. The warrants granted in October 1997 do not have an expiration
date. There were no warrants issued during 1998. 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.
10. 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.
For one property, the Operating Partnership has the option to purchase the
leased land at any time during the lease term. The purchase price ranges from
$1,800,000 to $2,200,000 depending on the exercise date.
The obligation for future minimum lease payments is as follows (in
thousands):
<TABLE>
<S> <C>
1999 ..................... $ 1,459
2000 ..................... 1,459
2001 ..................... 1,459
2002 ..................... 1,433
2003 ..................... 1,414
Thereafter ............... 58,684
-------
$65,908
=======
</TABLE>
Litigation
On October 2, 1998, John Flake, a former stockholder of J.C. Nichols
Company, filed a putative class action lawsuit on behalf of himself and the
other former stockholders of J.C. Nichols in the United States District Court
for the District of Kansas against J.C. Nichols, certain of its former officers
and directors and the Company. The complaint alleges, among other things, that
in connection with the merger of J.C. Nichols and the Company (1) J.C. Nichols
and the named directors and officers of J.C. Nichols breached their fiduciary
duties to J.C. Nichols' stockholders, (2) J.C. Nichols and the named directors
and officers of J.C. Nichols breached their fiduciary duties to members of the
J.C. Nichols Company Employee Stock Ownership Trust, (3) all defendants
participated in the dissemination of a proxy statement containing materially
false and misleading statements and omissions of material facts in violation of
Section 14(a) of the Securities Exchange Act of 1934 and (4) the Company filed a
registration statement with the Securities and Exchange Commission containing
materially false and misleading statements and omissions of material facts in
violation of Sections 11 and 12(2) of the Securities Act of 1933. The plaintiffs
seek equitable relief and monetary damages. The Company believes that the
defendants have meritorious defenses to the plaintiffs' allegations. The Company
intends to vigorously defend this litigation and has filed a motion to dismiss
all claims asserted against the defendants. Due to the inherent uncertainties of
the litigation process and the judicial system, the Company is not able to
F-22
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
10. COMMITMENTS AND CONTINGENCIES -- (Continued)
predict the outcome of this litigation. If this litigation is not resolved in
our favor, it could have a material adverse effect on the Operating
Partnership's business, financial condition and results of operations.
In addition, the Operating Partnership is a party to a variety of legal
proceedings arising in the ordinary course of our 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 affect on the Operating Partnership's business,
financial condition and results of operations.
Contracts
The Operating Partnership has entered into construction contracts totaling
$348 million at December 31, 1998. The amounts remaining on these contracts as
of December 31, 1998 totaled $130 million.
The Operating Partnership has entered into various contracts under which it
is committed to acquire 626 acres of land over a four-year period for an
aggregate purchase price of approximately $79 million.
Capital Expenditures
The Operating Partnership presently has no plans for major capital
improvements to the existing properties, other than normal recurring building
improvements, tenant improvements and lease commissions.
Environmental Matters
Substantially all of the Operating Partnership's in-service properties have
been subjected to Phase I environmental assessments (and, in certain instances,
Phase II environmental assessments). Such assessments and/or updates 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 many
years of management and development experience in their respective markets.
Accordingly, in connection with joining the Company as executive officers as a
result of such business combinations, these persons have entered into employment
agreements with the Company. The Operating Partnership reimburses the Company
with respect to its obligations under such agreements.
11. 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, 1998 were as
follows (in thousands):
F-23
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -- (Continued)
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------- -------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents ............. $ 30,696 $ 30,696
Accounts and notes receivable ......... $ 40,509 $ 40,509
Mortgages and notes payable ........... $1,906,216 $1,937,116
Interest rate hedge contracts ......... $ 2,046 $ (20,431)
</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,
1998, 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 hedge
contracts 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,
1998. 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.
12. ACQUISITION
On July 13, 1998, the Company completed its acquisition of the J.C. Nichols
Company ("JCN"), a Missouri real estate operating company, pursuant to a merger
agreement dated December 22, 1997 and amended on April 29, 1998. The aggregate
consideration totaled $544 million and consisted of the issuance of
approximately 5.63 million shares of the Company's Common Stock, the assumption
of approximately $229 million of debt, approximately $15 million in transaction
costs and a cash payment of approximately $120 million, net of cash acquired of
approximately $59 million. The merger was accounted for under the purchase
method of accounting. The results of operations of JCN have been included in the
Operating Partnership's financial statements for the period from July 13, 1998
to December 31, 1998. Unaudited pro forma information is provided in Note 13 as
if the acquisition of JCN had occurred at the beginning of the respective years
presented.
13. SUPPLEMENTAL PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma information has been prepared assuming
the following transactions all occurred as of January 1, 1997: (1) the
acquisition of 176 properties during 1997 at an initial cost of $1.1 billion;
(2) the issuance of 125,000 Series A Preferred Shares; (3) the issuance of $100
million of X-POS; (4) the issuance of 6,900,000 Series B Preferred Shares; (5)
the issuance of 1,800,000 shares of Common Stock in August 1997; (6) the
issuance of 8,500,000 shares of Common Stock in October 1997; (7) the
acquisition of 186 properties during 1998 at an initial cost of $1.2 billion;
(8) the issuance of $125 million of MOPPRS and $100 million unsecured notes due
2008 in February 1998; (9) the issuance of an aggregate of 5,503,795 shares of
Common Stock in underwritten public offerings during 1998; (10) the issuance of
400,000 Series D Preferred Shares; and (11) the issuance of $200 million of
unsecured notes due 2018 in April 1998.
F-24
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. SUPPLEMENTAL PRO FORMA INFORMATION (UNAUDITED) -- (Continued)
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 Company issued Common
Stock and the Operating Partnership issued Common Units totaling approximately
6.5 million and 6.7 million in 1998 and 1997, respectively, 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, 1998 December 31, 1997
---------------------- ---------------------
(in thousands, except per unit amounts)
<S> <C> <C>
Revenues ................................ $ 558,090 $ 454,307
Net income before
extraordinary item ..................... $ 128,292 $ 93,903
Net income .............................. $ 127,905 $ 86,958
Net income per share -- basic ........... $ 1.97 $ 1.27
Net income per share -- diluted ......... $ 1.96 $ 1.26
</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.
14. SEGMENT INFORMATION
The sole business of the Operating Partnership is the acquisition,
development and operation of rental real estate properties. The Operating
Partnership operates office, industrial and retail properties and apartment
units. There are no material inter-segment transactions.
The Operating Partnership's chief operating decision maker ("CDM") assesses
and measures operating results based upon property level net operating income.
The operating results for the individual assets within each property type have
been aggregated since the CDM evaluates operating results and allocates
resources on a property-by-property basis within the various property types.
The accounting policies of the segments are the same as those described in
note 1. Further, all operations are within the United States and no tenant
comprises more than 10% of consolidated revenues. The following table summarizes
the rental income, net operating income and assets for each reportable segment
for the years ended December 31, 1998, 1997 and 1996 (in thousands):
F-25
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
14. SEGMENT INFORMATION -- (Continued)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Rental income:
Office segment .................................................... $ 425,309 $ 233,527 $ 107,614
Industrial segment ................................................ 48,134 33,406 18,373
Retail segment .................................................... 13,922 -- --
Apartment segment ................................................. 9,374 -- --
--------- --------- ---------
$ 496,739 $ 266,933 $ 125,987
========= ========= =========
Net operating income:
Office segment net operating income ............................... $ 289,403 $ 162,685 $ 76,996
Industrial segment net operating income ........................... 39,392 27,505 15,334
Retail segment net operating income ............................... 8,869 -- --
Apartment segment net operating income ............................ 4,864 -- --
--------- --------- ---------
$ 342,528 $ 190,190 $ 92,330
Reconciliation to income before minority interest and extraordinary item:
Equity in income of unconsolidated affiliates ..................... (207) -- --
Gain on disposition of assets ..................................... 1,716 -- --
Interest and other income ......................................... 13,230 6,232 6,315
Interest expense .................................................. (93,959) (47,394) (25,230)
General and administrative expenses ............................... (20,776) (10,216) (5,636)
Depreciation and amortization ..................................... (91,397) (47,260) (21,105)
--------- --------- ---------
Income before minority interest and extraordinary item ............ $ 151,135 $ 91,552 $ 46,674
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Total Assets:
Office segment .............. $3,235,815 $2,348,292 $1,203,857
Industrial segment .......... 495,675 288,511 176,307
Retail segment .............. 239,555 -- --
Apartment segment ........... 139,093 -- --
Corporate and other ......... 137,562 70,437 49,324
---------- ---------- ----------
Total Assets ................ $4,247,700 $2,707,240 $1,429,488
========== ========== ==========
</TABLE>
15. SUBSEQUENT EVENTS
On March 15, 1999, the Operating Partnership closed a transaction with
Schweiz-Deutschland-USA Dreilander Beteiligung Objekt-DLF 98/29 -- Walter
Fink-KG ("DLF"), pursuant to which the Operating Partnership sold or contributed
certain office properties valued at approximately $142 million to a newly
created limited partnership (the "Joint Venture"). DLF contributed approximately
$55 million for a 77.19% interest in the Joint Venture, and the Joint Venture
borrowed approximately $71 million from third-party lenders. The Operating
Partnership retained the remaining 22.81% interest in the Joint Venture,
received cash proceeds of approximately $126 million and is the sole and
exclusive manager and leasing agent of the Joint Venture's properties, for which
the Operating Partnership receives customary management fees and leasing
commissions. The net book value of these properties at December 31, 1998 was
$131.3 million. The Operating Partnership used the cash proceeds received in the
transaction
F-26
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
15. SUBSEQUENT EVENTS -- (Continued)
to fund existing development activity either through direct payments or
repayment of borrowings under the Revolving Loan.
On August 28, 1997, the Company entered into a purchase agreement with UBS
AG, London Branch ("UB-LB") involving the sale of 1.8 million shares of Common
Stock and a related forward contract providing for certain purchase price
adjustments. The forward contract (as amended) generally provides that if the
market price (defined as the average closing price of the Common Stock for the
period beginning March 31, 1999 and ending when UB-LB has sold all of the shares
issued under the forward contract) is less than a certain amount, which we refer
to as the "Forward Price," we must pay UB-LB the difference times 1.8 million.
(Similarly, if the market price of a share of Common Stock is above the Forward
Price, UB-LB must pay us the difference in shares of Common Stock.)
On February 28, 1999, the Company and UB-LB amended the forward contract.
Pursuant to the amendment:
o UB-LB applied $12.8 million in Company collateral to "buy down" the Forward
Price by approximately $7.10 (at March 31, 1999, the forward price was
approximately $25.12);
o The Company issued 161,924 shares of common stock to UB-LB as an interim
settlement payment; and
o UB-LB agreed not to sell any of the shares that we had issued to it until
not later than March 31, 1999.
The Operating Partnership has recently entered into agreements to sell
approximately 3.9 million rentable square feet of non-core office and industrial
properties for gross proceeds of approximately $385 million. Non-core properties
generally include single buildings or business parks that do not fit the
Operating Partnership's long-term strategy. The transactions are subject to
customary closing conditions such as expiration of the buyers' due diligence
periods. Although the Operating Partnership believes that the transactions will
close by May 31, 1999, it can provide no assurance that all or part of the
transactions will be consummated.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
Selected quarterly financial data for the years ended December 31, 1998,
and 1997 are as follows (in thousands except per share amounts):
<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 24,831 78,435
Extraordinary item ......... (3,973) -- (1,561) (1,358) (6,945)
-------- -------- -------- -------- --------
Net (loss) income .......... $ 13,697 $ 17,535 $ 16,838 $ 23,420 $71,490
======== ======== ======== ======== ========
Per Common Unit:
Income before
extraordinary
item -- Basic ........... $ .42 $ .42 $ .43 $ .42 $ 1.69
======== ======== ======== ======== ========
Income before
extraordinary
item -- Diluted ......... $ .42 $ .41 $ .42 $ .41 $ 1.68
======== ======== ======== ======== ========
</TABLE>
F-27
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): -- (Continued)
<TABLE>
<CAPTION>
For the year ended December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter Total
--------------- ---------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues ................... $102,384 $ 115,400 $141,773 $151,921 $511,478
Income before extraordinary
item ..................... 27,836 29,426 32,403 31,378 121,043
Extraordinary item ......... (46) -- (324) (17) (387)
-------- --------- -------- -------- --------
Net income ................. $ 27,790 $ 29,426 $ 32,079 $ 31,361 $120,656
======== ========= ======== ======== ========
Per Common Unit:
Income before
extraordinary
item -- Basic ........... $ .47 $ .47 $ .48 $ .45 $ 1.87
======== ========= ======== ======== ========
Income before
extraordinary
item -- Diluted ......... $ .47 $ .47 $ .47 $ .45 $ 1.86
======== ========= ======== ======== ========
</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 Common Units outstanding.
F-28
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP, INC.
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
----------------------- ------------------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- --------------------------------- ------------- -------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Asheville, NC
Ridgefield III -- 743 3,183 -- 861
Ridgefield I 1,662 636 3,607 -- 234
Ridgefield II 1,812 910 5,157 -- 173
Atlanta,GA
1765 The Exchange -- 767 6,305 -- 271
One Point Royal -- 1,754 16,621 -- 44
Two Point Royal -- 1,793 14,951 -- 56
400 North Business Park -- 979 6,112 -- 144
50 Glenlake -- 2,500 20,000 -- 242
6348 Northeast Expressway 1,400 277 1,629 -- 26
6438 Northeast Expressway 1,587 181 2,225 -- 46
Bluegrass Place 1 -- 491 2,016 -- 24
Bluegrass Place 2 -- 412 2,529 -- 28
1700 Century Circle -- 1,115 3,148 -- 310
1800 Century Boulevard -- 1,441 28,939 -- 378
1875 Century Boulevard -- -- 8,790 -- 318
1900 Century Boulevard -- -- 4,721 -- 314
2200 Century Parkway -- -- 14,274 -- 754
2400 Century Center -- -- 12,435 -- 2,486
2600 Century Parkway -- -- 10,254 -- 312
2635 Century Parkway -- -- 21,083 -- 726
2800 Century Parkway -- -- 19,963 -- 208
Chattahoochee Avenue -- 248 1,817 -- 216
Chastain Place I -- 472 3,011 -- 901
Chastain Place II -- 607 1,338 -- 507
Chastain Place III -- -- -- -- 35
Corporate Lakes Distribution
Center -- 1,275 7,227 -- 339
Cosmopolitan North -- 2,855 4,155 -- 463
Deerfield land -- 879 -- -- --
EKA Chemical -- 609 9,883 -- 3
1035 Fred Drive -- 270 1,239 -- 13
1077 Fred Drive -- 384 1,191 -- 29
5125 Fulton Industrial Blvd -- 578 3,116 -- 81
Fulton Corporate Center -- 542 2,042 -- 70
10 Glenlake -- 2,569 20,333 -- 1
Glenlakes -- 2,908 -- -- --
Gwinnett Distribution Center -- 1,128 5,943 -- 293
Kennestone Corporate Center -- 518 4,874 -- 99
Lavista Business Park -- 821 5,244 -- 443
Norcross, I, II -- 326 1,979 -- 20
Nortel -- 3,341 32,109 -- 2
Newpoint Place I -- 825 2,452 -- 1,329
Newpoint Place III -- 661 1,866 -- 831
Newpoint Place -- 187 -- -- --
Newpoint - Site E -- 984 -- -- --
Oakbrook I 1,985 873 4,948 -- 73
Oakbrook II 3,416 1,579 8,950 -- 573
Oakbrook III 3,877 1,480 8,388 -- 172
Oakbrook IV 2,348 953 5,400 -- 45
Oakbrook V 5,586 2,206 12,501 -- 210
Oakbrook Summitt 4,565 950 6,572 -- 146
Oxford Lake Business Center -- 855 7,014 -- 77
Peachtree Corners Land -- -- -- 744 --
Southside Distribution Center -- 810 4,482 -- 78
Steel Drive -- 171 1,219 (171) (1,219)
Highwoods Center I @ Tradeport -- -- -- -- 9
Atlanta Tradeport -- -- -- 7,124 --
Baltimore, MD
4000 Old Court Medical Building -- 862 5,152 1 15
9690 Deereco Road -- 1,188 16,296 -- 206
Automatic Data Processing -- 2,277 7,667 -- 2,256
The Atrium -- 1,390 9,864 -- 107
Business Center at Owings Mills,
Lot 7 -- 827 1,581 -- 16
Business Center at Owings Mills,
Lot 8 -- 786 2,241 -- 23
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
------------------------------------ Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (28) Depreciation Construction is Computed
- --------------------------------- -------- -------------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Asheville, NC
Ridgefield III 743 4,044 4,787 57 1998 5-40 yrs.
Ridgefield I 636 3,841 4,477 260 1987 5-40 yrs.
Ridgefield II 910 5,330 6,240 328 1989 5-40 yrs.
Atlanta,GA
1765 The Exchange 767 6,576 7,343 239 1983 5-40 yrs.
One Point Royal 1,754 16,665 18,419 329 1996 5-40 yrs.
Two Point Royal 1,793 15,007 16,800 392 1997 5-40 yrs.
400 North Business Park 979 6,256 7,235 278 1985 5-40 yrs.
50 Glenlake 2,500 20,242 22,742 563 1997 5-40 yrs.
6348 Northeast Expressway 277 1,655 1,932 80 1978 5-40 yrs.
6438 Northeast Expressway 181 2,271 2,452 107 1981 5-40 yrs.
Bluegrass Place 1 491 2,040 2,531 71 1995 5-40 yrs.
Bluegrass Place 2 412 2,557 2,969 89 1996 5-40 yrs.
1700 Century Circle 1,115 3,458 4,573 217 1972 5-40 yrs.
1800 Century Boulevard 1,441 29,317 30,758 1,444 1975 5-40 yrs.
1875 Century Boulevard -- 9,108 9,108 458 1976 5-40 yrs.
1900 Century Boulevard -- 5,035 5,035 275 1971 5-40 yrs.
2200 Century Parkway -- 15,028 15,028 777 1971 5-40 yrs.
2400 Century Center -- 14,921 14,921 91 1998 5-40 yrs.
2600 Century Parkway -- 10,566 10,566 515 1973 5-40 yrs.
2635 Century Parkway -- 21,809 21,809 1,084 1980 5-40 yrs.
2800 Century Parkway -- 20,171 20,171 997 1983 5-40 yrs.
Chattahoochee Avenue 248 2,033 2,281 148 1970 5-40 yrs.
Chastain Place I 472 3,912 4,384 276 1997 5-40 yrs.
Chastain Place II 607 1,845 2,452 9 1998 5-40 yrs.
Chastain Place III -- 35 35 -- N/A N/A
Corporate Lakes Distribution
Center 1,275 7,566 8,841 426 1988 5-40 yrs.
Cosmopolitan North 2,855 4,618 7,473 247 1980 5-40 yrs.
Deerfield land 879 -- 879 -- N/A N/A
EKA Chemical 609 9,886 10,495 196 1998 5-40 yrs.
1035 Fred Drive 270 1,252 1,522 62 1973 5-40 yrs.
1077 Fred Drive 384 1,220 1,604 60 1973 5-40 yrs.
5125 Fulton Industrial Blvd 578 3,197 3,775 164 1973 5-40 yrs.
Fulton Corporate Center 542 2,112 2,654 106 1973 5-40 yrs.
10 Glenlake 2,569 20,334 22,903 21 1998 5-40 yrs.
Glenlakes 2,908 -- 2,908 -- N/A N/A
Gwinnett Distribution Center 1,128 6,236 7,364 323 1991 5-40 yrs.
Kennestone Corporate Center 518 4,973 5,491 215 1985 5-40 yrs.
Lavista Business Park 821 5,687 6,508 290 1973 5-40 yrs.
Norcross, I, II 326 1,999 2,325 94 1970 5-40 yrs.
Nortel 3,341 32,111 35,452 635 1998 5-40 yrs.
Newpoint Place I 825 3,781 4,606 108 1998 5-40 yrs.
Newpoint Place III 661 2,697 3,358 5 1998 5-40 yrs.
Newpoint Place 187 -- 187 -- N/A N/A
Newpoint - Site E 984 -- 984 -- N/A N/A
Oakbrook I 873 5,021 5,894 309 1981 5-40 yrs.
Oakbrook II 1,579 9,523 11,102 733 1983 5-40 yrs.
Oakbrook III 1,480 8,560 10,040 613 1984 5-40 yrs.
Oakbrook IV 953 5,445 6,398 329 1985 5-40 yrs.
Oakbrook V 2,206 12,711 14,917 799 1985 5-40 yrs.
Oakbrook Summitt 950 6,718 7,668 327 1981 5-40 yrs.
Oxford Lake Business Center 855 7,091 7,946 308 1985 5-40 yrs.
Peachtree Corners Land 744 -- 744 -- N/A N/A
Southside Distribution Center 810 4,560 5,370 217 1988 5-40 yrs.
Steel Drive -- -- -- -- 1975 5-40 yrs.
Highwoods Center I @ Tradeport -- 9 9 -- N/A N/A
Atlanta Tradeport 7,124 -- 7,124 -- N/A N/A
Baltimore, MD
4000 Old Court Medical Building 863 5,167 6,030 93 1987 5-40 yrs.
9690 Deereco Road 1,188 16,502 17,690 433 1989 5-40 yrs.
Automatic Data Processing 2,277 9,923 12,200 39 1998 5-40 yrs.
The Atrium 1,390 9,971 11,361 262 1986 5-40 yrs.
Business Center at Owings Mills,
Lot 7 827 1,597 2,424 42 1989 5-40 yrs.
Business Center at Owings Mills,
Lot 8 786 2,264 3,050 60 1989 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>
Business Center at Owings Mills,
Lot 9 -- 960 6,125 -- 63
Clark Building -- 1,675 8,764 -- 193
Merrill Lynch Building -- 2,960 11,316 -- 16
Sportsman Club -- -- -- 9,851 --
Birmingham, AL
Grandview I -- 1,895 10,739 (1,895) (10,739)
Boca Raton, FL
Highwoods Square -- 2,586 14,657 -- 178
Highwoods Plaza -- 1,772 10,042 -- 165
Highwoods Square -- -- -- -- 44
One Boca Place -- 5,736 32,505 -- 517
Charlotte, NC
4101 Stuart Andrew Boulevard -- 70 510 -- 245
4105 Stuart Andrew Boulevard -- 26 189 -- 22
4109 Stuart Andrew Boulevard -- 87 636 -- 40
4201 Stuart Andrew Boulevard -- 110 809 -- 53
4205 Stuart Andrew Boulevard -- 134 979 -- 52
4209 Stuart Andrew Boulevard -- 91 665 -- 42
4215 Stuart Andrew Boulevard -- 133 978 -- 48
4301 Stuart Andrew Boulevard -- 232 1,702 -- 144
4321 Stuart Andrew Boulevard -- 73 534 -- 30
4601 Park Square -- 2,601 7,802 -- --
Alston & Bird -- 2,362 5,379 -- --
First Citizens Building -- 647 5,528 -- 358
Twin Lakes Distribution Center -- 2,816 6,571 -- --
Mallard Creek I -- 1,248 4,142 -- 41
Mallard Creek III -- 845 4,762 -- 19
Mallard Creek IV -- 348 1,152 -- --
Mallard Creek VI -- -- -- 834 --
NationsFord Business Park -- 1,206 -- 5 --
Oak Hill Business Park English 1,941 750 4,248 -- 51
Oak Hill Business Park Laurel 1,428 471 2,671 -- 278
Oak Hill Business Pk
Live Oak -- 1,403 5,611 -- 565
Oak Hill Business Park Scarlett 2,147 1,073 6,078 -- 145
Oak Hill Business Park
Twin Oak 3,359 1,243 7,044 -- 211
Oak Hill Business Park Willow 1,217 442 2,505 -- 903
Oak Hill Business Park Water 5,027 1,623 9,196 -- 784
Pinebrook -- 846 4,607 -- 65
Parkway Plaza Building One -- 1,110 4,741 -- 299
Parkway Plaza Building Two -- 1,694 6,777 -- 1,221
Parkway Plaza Building Three (4) 1,570 6,282 -- 488
Parkway Plaza Building Six -- -- 2,438 -- 531
Parkway Plaza Building Seven -- -- 4,648 -- 176
Parkway Plaza Building Eight -- -- 4,698 -- 129
Parkway Plaza Building Nine -- -- 6,008 -- 28
Parkway Plaza Building Eleven -- -- -- -- 107
Steele Creek Park Building A -- 499 1,998 (499) (1,998)
Steele Creek Park Building B -- 110 441 (110) (441)
Steele Creek Park Building E -- 188 751 (188) (751)
Steele Creek Park Building G - 1 -- 196 783 (196) (783)
Steele Creek Park Building H -- 169 677 (169) (677)
Steele Creek Park Building K -- 148 592 (148) (592)
University Research Center -- 3,694 13,330 -- --
Columbia, SC
Center Point I 3,500 1,313 7,441 -- 86
Center Point II -- 1,183 6,702 1 2,005
Center Point V -- 265 1,279 -- 195
Center Point VI -- -- -- 265 --
Fontaine I 3,472 1,219 6,907 -- 326
Fontaine II 1,782 941 5,335 -- 718
Fontaine III -- 853 4,833 -- 87
Fontaine V 1,176 395 2,237 -- --
Des Moines, IA
Crestwood (6) -- -- 676 1,674
Edgewater (6) -- -- 525 7,652
Highland (6) -- -- 1,976 4,428
Neptune 6,000 -- -- 1,672 3,187
Sunset (6) -- -- 23 800
Veridan (6) -- -- 3,615 4,472
Winwood Apartments 23,000 -- -- 3,320 12,999
Waterford (6) -- -- 177 3,669
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
----------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (28) Depreciation Construction is Computed
- ---------------------------------- -------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Business Center at Owings Mills,
Lot 9 960 6,188 7,148 163 1988 5-40 yrs.
Clark Building 1,675 8,957 10,632 165 1974 5-40 yrs.
Merrill Lynch Building 2,960 11,332 14,292 210 1982 5-40 yrs.
Sportsman Club 9,851 -- 9,851 -- N/A N/A
Birmingham, AL
Grandview I -- -- -- -- 1989 5-40 yrs.
Boca Raton, FL
Highwoods Square 2,586 14,835 17,421 900 1989 5-40 yrs.
Highwoods Plaza 1,772 10,207 11,979 617 1980 5-40 yrs.
Highwoods Square -- 44 44 -- N/A N/A
One Boca Place 5,736 33,022 38,758 1,980 1987 5-40 yrs.
Charlotte, NC
4101 Stuart Andrew Boulevard 70 755 825 124 1984 5-40 yrs.
4105 Stuart Andrew Boulevard 26 211 237 25 1984 5-40 yrs.
4109 Stuart Andrew Boulevard 87 676 763 64 1984 5-40 yrs.
4201 Stuart Andrew Boulevard 110 862 972 87 1982 5-40 yrs.
4205 Stuart Andrew Boulevard 134 1,031 1,165 97 1982 5-40 yrs.
4209 Stuart Andrew Boulevard 91 707 798 70 1982 5-40 yrs.
4215 Stuart Andrew Boulevard 133 1,026 1,159 105 1982 5-40 yrs.
4301 Stuart Andrew Boulevard 232 1,846 2,078 170 1982 5-40 yrs.
4321 Stuart Andrew Boulevard 73 564 637 49 1982 5-40 yrs.
4601 Park Square 2,601 7,802 10,403 139 1972 5-40 yrs.
Alston & Bird 2,362 5,379 7,741 120 1965 5-40 yrs.
First Citizens Building 647 5,886 6,533 708 1989 5-40 yrs.
Twin Lakes Distribution Center 2,816 6,571 9,387 90 1991 5-40 yrs.
Mallard Creek I 1,248 4,183 5,431 72 1986 5-40 yrs.
Mallard Creek III 845 4,781 5,626 76 1990 5-40 yrs.
Mallard Creek IV 348 1,152 1,500 18 1993 5-40 yrs.
Mallard Creek VI 834 -- 834 -- N/A N/A
NationsFord Business Park 1,211 -- 1,211 -- N/A N/A
Oak Hill Business Park English 750 4,299 5,049 261 1984 5-40 yrs.
Oak Hill Business Park Laurel 471 2,949 3,420 230 1984 5-40 yrs.
Oak Hill Business Pk
Live Oak 1,403 6,176 7,579 440 1989 5-40 yrs.
Oak Hill Business Park Scarlett 1,073 6,223 7,296 393 1982 5-40 yrs.
Oak Hill Business Park
Twin Oak 1,243 7,255 8,498 421 1985 5-40 yrs.
Oak Hill Business Park Willow 442 3,408 3,850 230 1982 5-40 yrs.
Oak Hill Business Park Water 1,623 9,980 11,603 708 1985 5-40 yrs.
Pinebrook 846 4,672 5,518 169 1986 5-40 yrs.
Parkway Plaza Building One 1,110 5,040 6,150 407 1982 5-40 yrs.
Parkway Plaza Building Two 1,694 7,998 9,692 880 1983 5-40 yrs.
Parkway Plaza Building Three 1,570 6,770 8,340 639 1984 5-40 yrs.
Parkway Plaza Building Six -- 2,969 2,969 271 1996 5-40 yrs.
Parkway Plaza Building Seven -- 4,824 4,824 364 1985 5-40 yrs.
Parkway Plaza Building Eight -- 4,827 4,827 360 1986 5-40 yrs.
Parkway Plaza Building Nine -- 6,036 6,036 460 1984 5-40 yrs.
Parkway Plaza Building Eleven -- 107 107 -- N/A N/A
Steele Creek Park Building A -- -- -- -- 1989 5-40 yrs.
Steele Creek Park Building B -- -- -- -- 1985 5-40 yrs.
Steele Creek Park Building E -- -- -- -- 1985 5-40 yrs.
Steele Creek Park Building G - 1 -- -- -- -- 1989 5-40 yrs.
Steele Creek Park Building H -- -- -- -- 1987 5-40 yrs.
Steele Creek Park Building K -- -- -- -- 1985 5-40 yrs.
University Research Center 3,694 13,330 17,024 266 1980 5-40 yrs.
Columbia, SC
Center Point I 1,313 7,527 8,840 436 1988 5-40 yrs.
Center Point II 1,184 8,707 9,891 513 1996 5-40 yrs.
Center Point V 265 1,474 1,739 87 1997 5-40 yrs.
Center Point VI 265 -- 265 -- N/A N/A
Fontaine I 1,219 7,233 8,452 405 1985 5-40 yrs.
Fontaine II 941 6,053 6,994 595 1987 5-40 yrs.
Fontaine III 853 4,920 5,773 306 1988 5-40 yrs.
Fontaine V 395 2,237 2,632 130 1990 5-40 yrs.
Des Moines, IA
Crestwood 676 1,674 2,350 54 1987 5-40 yrs.
Edgewater 525 7,652 8,177 144 1989 5-40 yrs.
Highland 1,976 4,428 6,404 134 1987 5-40 yrs.
Neptune 1,672 3,187 4,859 120 1986 5-40 yrs.
Sunset 23 800 823 22 1989 5-40 yrs.
Veridan 3,615 4,472 8,087 141 1989 5-40 yrs.
Winwood Apartments 3,320 12,999 16,319 323 1986 5-40 yrs.
Waterford 177 3,669 3,846 72 1990 5-40 yrs.
</TABLE>
F-30
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
---------------------- ----------------------------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- --------------------------------- ------------- ------- -------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Piedmont Triad, NC
Airport Center Drive -- 1,600 -- (563)(18) --
6348 Burnt Poplar -- 721 2,883 -- 8
6350 Burnt Poplar -- 339 1,365 -- 17
Chimney Rock A/B -- 1,610 3,757 -- --
Chimney Rock C -- 604 1,408 -- --
Chimney Rock D -- 236 550 -- --
Chimney Rock E -- 1,692 3,948 -- --
Chimney Rock F -- 1,431 3,338 -- --
Chimney Rock G -- 1,044 2,435 -- --
Deep River Corporate Center 2,273 1,033 5,855 -- 191
Airpark East-Copier Consultants (3) 252 1,008 -- 123
Airpark East-Building 01 (3) 377 1,510 -- 46
Airpark East-Building 02 (3) 461 1,842 -- 22
Airpark East-Building 03 (3) 321 1,283 -- 71
Airpark East-HewlettPackard -- 149 727 313(17) 206
Airpark East-Inacom Building -- 106 478 222(17) 293
Airpark East-Simplex -- 103 526 196(17) 256
Airpark East-Building A (3) 541 2,913 -- 366
Airpark East-Building B (3) 779 3,200 -- 275
Airpark East-C Building (3) 2,384 9,535 -- 360
Airpark East-Building D -- 271 3,213 575(17) 709
Airpark East Expansion -- -- -- 598 --
Airpark East Land -- 1,317 -- (1,306)(17) 4
Airpark East-Service Center 1 (3) 275 1,099 -- 89
Airpark East-Service Center 2 (3) 222 889 -- 118
Airpark East-Service Center 3 (3) 304 1,214 -- 64
Airpark East-Service Center 4 (3) 224 898 -- 16
Airpark East-Service Court (3) 194 774 -- 44
Airpark East-Warehouse 1 (3) 384 1,535 -- 80
Airpark East-Warehouse 2 (3) 372 1,488 -- 68
Airpark East-Warehouse 3 (3) 370 1,480 -- 27
Airpark East-Warehouse 4 (3) 657 2,628 -- 178
Airpark East-Highland (3) 175 699 -- 8
206 South Westgate Drive -- 91 664 -- 79
207 South Westgate Drive -- 138 1,012 -- 8
300 South Westgate Drive -- 68 496 -- 6
305 South Westgate Drive -- 30 220 -- 73
307 South Westgate Drive -- 66 485 -- 7
309 South Westgate Drive -- 68 496 -- 21
311 South Westgate Drive -- 75 551 -- 26
315 South Westgate Drive -- 54 396 -- 9
317 South Westgate Drive -- 81 597 -- 15
319 South Westgate Drive -- 54 396 -- 7
4600 Dundas Circle -- 62 456 (62) (456)
4602 Dundas Circle -- 68 498 (68) (498)
7906 Industrial Village Road -- 62 455 -- 16
7908 Industrial Village Road -- 62 455 -- 11
7910 Industrial Village Road -- 62 455 -- 14
Airpark North - DC1 (3) 723 2,891 -- 63
Airpark North - DC2 (3) 1,094 4,375 -- 91
Airpark North - DC3 (3) 378 1,511 -- 240
Airpark North - DC4 (3) 377 1,508 -- 137
Airpark North Land -- 804 -- -- --
2606 Phoenix Drive-100 Series -- 63 466 -- --
2606 Phoenix Drive-200 Series -- 63 466 -- 3
2606 Phoenix Drive-300 Series -- 31 229 -- 70
2606 Phoenix Drive-400 Series -- 52 382 -- 11
2606 Phoenix Drive-500 Series -- 64 471 -- 9
2606 Phoenix Drive-600 Series -- 78 575 -- 16
Network Construction -- -- 533 -- 200
5 Dundas Circle -- 72 531 -- 10
7 Dundas Circle -- 75 552 -- 14
8 Dundas Circle -- 84 617 -- 19
302 Pomona Drive -- 84 617 -- 72
304 Pomona Drive -- 22 163 -- --
306 Pomona Drive -- 50 368 -- 8
308 Pomona Drive -- 72 531 -- 2
9 Dundas Circle -- 51 373 -- 3
2616 Phoenix Drive -- 135 990 -- 81
500 Radar Road -- 202 1,484 -- 104
502 Radar Road -- 39 285 -- 62
504 Radar Road -- 39 285 -- 3
506 Radar Road -- 39 285 -- 7
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
----------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (28) Depreciation Construction is Computed
- --------------------------------- ------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Piedmont Triad, NC
Airport Center Drive 1,037 -- 1,037 -- N/A N/A
6348 Burnt Poplar 721 2,891 3,612 280 1990 5-40 yrs.
6350 Burnt Poplar 339 1,382 1,721 133 1992 5-40 yrs.
Chimney Rock A/B 1,610 3,757 5,367 55 1981 5-40 yrs.
Chimney Rock C 604 1,408 2,012 20 1983 5-40 yrs.
Chimney Rock D 236 550 786 8 1983 5-40 yrs.
Chimney Rock E 1,692 3,948 5,640 58 1985 5-40 yrs.
Chimney Rock F 1,431 3,338 4,769 49 1987 5-40 yrs.
Chimney Rock G 1,044 2,435 3,479 35 1987 5-40 yrs.
Deep River Corporate Center 1,033 6,046 7,079 406 1989 5-40 yrs.
Airpark East-Copier Consultants 252 1,131 1,383 99 1990 5-40 yrs.
Airpark East-Building 01 377 1,556 1,933 182 1990 5-40 yrs.
Airpark East-Building 02 461 1,864 2,325 182 1986 5-40 yrs.
Airpark East-Building 03 321 1,354 1,675 146 1986 5-40 yrs.
Airpark East-HewlettPackard 462 933 1,395 140 1996 5-40 yrs.
Airpark East-Inacom Building 328 771 1,099 109 1996 5-40 yrs.
Airpark East-Simplex 299 782 1,081 87 1997 5-40 yrs.
Airpark East-Building A 541 3,279 3,820 397 1986 5-40 yrs.
Airpark East-Building B 779 3,475 4,254 412 1988 5-40 yrs.
Airpark East-C Building 2,384 9,895 12,279 1,014 1990 5-40 yrs.
Airpark East-Building D 846 3,922 4,768 345 1997 5-40 yrs.
Airpark East Expansion 598 -- 598 -- N/A N/A
Airpark East Land 11 4 15 -- N/A N/A
Airpark East-Service Center 1 275 1,188 1,463 139 1985 5-40 yrs.
Airpark East-Service Center 2 222 1,007 1,229 96 1985 5-40 yrs.
Airpark East-Service Center 3 304 1,278 1,582 149 1985 5-40 yrs.
Airpark East-Service Center 4 224 914 1,138 88 1985 5-40 yrs.
Airpark East-Service Court 194 818 1,012 88 1990 5-40 yrs.
Airpark East-Warehouse 1 384 1,615 1,999 165 1985 5-40 yrs.
Airpark East-Warehouse 2 372 1,556 1,928 157 1985 5-40 yrs.
Airpark East-Warehouse 3 370 1,507 1,877 148 1986 5-40 yrs.
Airpark East-Warehouse 4 657 2,806 3,463 259 1988 5-40 yrs.
Airpark East-Highland 175 707 882 69 1990 5-40 yrs.
206 South Westgate Drive 91 743 834 58 1986 5-40 yrs.
207 South Westgate Drive 138 1,020 1,158 88 1986 5-40 yrs.
300 South Westgate Drive 68 502 570 43 1986 5-40 yrs.
305 South Westgate Drive 30 293 323 27 1985 5-40 yrs.
307 South Westgate Drive 66 492 558 46 1985 5-40 yrs.
309 South Westgate Drive 68 517 585 46 1985 5-40 yrs.
311 South Westgate Drive 75 577 652 60 1985 5-40 yrs.
315 South Westgate Drive 54 405 459 37 1985 5-40 yrs.
317 South Westgate Drive 81 612 693 58 1985 5-40 yrs.
319 South Westgate Drive 54 403 457 35 1985 5-40 yrs.
4600 Dundas Circle -- -- -- -- 1985 5-40 yrs.
4602 Dundas Circle -- -- -- -- 1985 5-40 yrs.
7906 Industrial Village Road 62 471 533 40 1985 5-40 yrs.
7908 Industrial Village Road 62 466 528 43 1985 5-40 yrs.
7910 Industrial Village Road 62 469 531 46 1985 5-40 yrs.
Airpark North - DC1 723 2,954 3,677 288 1986 5-40 yrs.
Airpark North - DC2 1,094 4,466 5,560 440 1987 5-40 yrs.
Airpark North - DC3 378 1,751 2,129 223 1988 5-40 yrs.
Airpark North - DC4 377 1,645 2,022 170 1988 5-40 yrs.
Airpark North Land 804 -- 804 -- N/A N/A
2606 Phoenix Drive-100 Series 63 466 529 40 1989 5-40 yrs.
2606 Phoenix Drive-200 Series 63 469 532 43 1989 5-40 yrs.
2606 Phoenix Drive-300 Series 31 299 330 28 1989 5-40 yrs.
2606 Phoenix Drive-400 Series 52 393 445 38 1989 5-40 yrs.
2606 Phoenix Drive-500 Series 64 480 544 47 1989 5-40 yrs.
2606 Phoenix Drive-600 Series 78 591 669 57 1989 5-40 yrs.
Network Construction -- 733 733 16 1988 5-40 yrs.
5 Dundas Circle 72 541 613 54 1987 5-40 yrs.
7 Dundas Circle 75 566 641 54 1986 5-40 yrs.
8 Dundas Circle 84 636 720 64 1986 5-40 yrs.
302 Pomona Drive 84 689 773 68 1987 5-40 yrs.
304 Pomona Drive 22 163 185 14 1987 5-40 yrs.
306 Pomona Drive 50 376 426 39 1987 5-40 yrs.
308 Pomona Drive 72 533 605 47 1987 5-40 yrs.
9 Dundas Circle 51 376 427 35 1986 5-40 yrs.
2616 Phoenix Drive 135 1,071 1,206 95 1985 5-40 yrs.
500 Radar Road 202 1,588 1,790 152 1981 5-40 yrs.
502 Radar Road 39 347 386 35 1986 5-40 yrs.
504 Radar Road 39 288 327 26 1986 5-40 yrs.
506 Radar Road 39 292 331 26 1986 5-40 yrs.
</TABLE>
F-31
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
----------------------- --------------------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ---------------------------------- -------------- -------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Regency One-Piedmont Center -- 515 2,347 -- 576
Regency Two-Piedmont Center -- 435 1,859 -- 509
Sears Cenfact -- 861 3,446 -- 22
4000 Spring Garden Street -- 127 933 -- 67
4002 Spring Garden Street -- 39 290 -- 2
4004 Spring Garden Street -- 139 1,019 -- 57
Air Park South Warehouse I -- 491 1,895 -- 691
Air Park South Warehouse VI -- -- -- -- 1,005
RF Micro Devices -- 512 7,674 -- 132
Airpark West-1 (4) 954 3,817 -- 365
Airpark West-2 (4) 887 3,536 (3) 487
Airpark West-4 (4) 226 903 -- 124
Airpark West-5 (4) 242 966 -- 72
Airpark West-6 (4) 326 1,308 -- 99
7327 West Friendly Avenue -- 60 441 -- 6
7339 West Friendly Avenue -- 63 465 -- 14
7341 West Friendly Avenue -- 113 831 -- 93
7343 West Friendly Avenue -- 72 531 -- 7
7345 West Friendly Avenue -- 66 485 -- 12
7347 West Friendly Avenue -- 97 709 -- 61
7349 West Friendly Avenue -- 53 388 -- 13
7351 West Friendly Avenue -- 106 778 -- 28
7353 West Friendly Avenue -- 123 901 -- 12
7355 West Friendly Avenue -- 72 525 -- 7
150 Stratford -- 2,777 11,459 -- 238
Chesapeake (4) 1,236 4,944 -- 8
Forsyth Corporate Center 1,936 326 1,850 -- 624
The Knollwood-370 (3) 1,819 7,451 -- 468
The Knollwood-380 (3) 2,977 11,912 6,027 1,127
RMIC -- 1,091 5,525 -- 609
Robinhood -- 290 1,159 -- 111
101 Stratford -- 1,205 6,810 -- 94
Consolidated Center/Building I -- 625 2,126 -- 52
Consolidated Center/Building II -- 625 4,376 -- 55
Consolidated Center/Building III -- 680 3,522 -- 47
Consolidated Center/Building IV -- 376 1,624 -- 112
Champion Headquarters -- 1,725 6,280 -- 85
Grassy Creek - Building G -- 1,439 3,357 -- --
Grassy Creek - Building H -- 1,606 3,748 -- --
Grassy Creek - Building I -- 1,835 4,283 -- --
Hampton Park - Building 5 -- 318 742 -- --
Hampton Park - Building 6 -- 371 866 -- --
Hampton Park - Building 7 -- 212 495 -- --
Hampton Park - Building 8 -- 212 495 -- --
Hampton Park - Building 9 -- 212 495 -- --
5100 Indiana Avenue -- 490 1,143 -- --
Members Warehouse -- 602 1,406 -- --
Madison Park - Building 5610 -- 211 493 -- --
Madison Park - Building 5620 (16) 941 2,196 -- --
Madison Park - Building 5630 (16) 1,486 3,468 -- --
Madison Park - Building 5635 (16) 893 2,083 -- --
Madison Park - Building 5640 (16) 3,632 8,476 -- --
Madison Park - Building 5650 (16) 1,081 2,522 -- --
Madison Park - Building 5660 (16) 1,910 4,456 -- --
Madison Park - Building 5655 (16) 5,891 13,753 -- --
711 Almondridge -- 301 702 -- --
710 Almondridge -- 1,809 4,221 -- --
500 Northridge -- 1,789 4,174 -- --
520 Northridge -- 1,645 3,876 -- --
531 Northridge Warehouse -- 4,992 11,648 -- --
531 Northridge Office -- 766 1,788 -- --
540 Northridge -- 2,038 4,755 -- --
550 Northridge -- 472 1,102 -- --
US Airways -- 2,625 14,824 -- 180
University Commercial
Center-Landmark 03 -- 429 1,771 -- 136
University Commercial
Center-Archer 04 -- 514 2,058 -- 165
University Commercial
Center-Service Center 1 -- 276 1,155 -- 66
University Commercial
Center-Service Center 2 -- 215 859 -- 120
University Commercial
Center-Service Center 3 -- 167 668 -- 27
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
------------------------------------ Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (28) Depreciation Construction is Computed
- ---------------------------------- -------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Regency One-Piedmont Center 515 2,923 3,438 288 1996 5-40 yrs.
Regency Two-Piedmont Center 435 2,368 2,803 294 1996 5-40 yrs.
Sears Cenfact 861 3,468 4,329 337 1989 5-40 yrs.
4000 Spring Garden Street 127 1,000 1,127 98 1983 5-40 yrs.
4002 Spring Garden Street 39 292 331 27 1983 5-40 yrs.
4004 Spring Garden Street 139 1,076 1,215 107 1983 5-40 yrs.
Air Park South Warehouse I 491 2,586 3,077 51 1998 5-40 yrs.
Air Park South Warehouse VI -- 1,005 1,005 -- N/A N/A
RF Micro Devices 512 7,806 8,318 237 1997 5-40 yrs.
Airpark West-1 954 4,182 5,136 620 1984 5-40 yrs.
Airpark West-2 884 4,023 4,907 387 1985 5-40 yrs.
Airpark West-4 226 1,027 1,253 135 1985 5-40 yrs.
Airpark West-5 242 1,038 1,280 118 1985 5-40 yrs.
Airpark West-6 326 1,407 1,733 184 1985 5-40 yrs.
7327 West Friendly Avenue 60 447 507 39 1987 5-40 yrs.
7339 West Friendly Avenue 63 479 542 43 1989 5-40 yrs.
7341 West Friendly Avenue 113 924 1,037 84 1988 5-40 yrs.
7343 West Friendly Avenue 72 538 610 46 1988 5-40 yrs.
7345 West Friendly Avenue 66 497 563 47 1988 5-40 yrs.
7347 West Friendly Avenue 97 770 867 86 1988 5-40 yrs.
7349 West Friendly Avenue 53 401 454 40 1988 5-40 yrs.
7351 West Friendly Avenue 106 806 912 76 1988 5-40 yrs.
7353 West Friendly Avenue 123 913 1,036 79 1988 5-40 yrs.
7355 West Friendly Avenue 72 532 604 46 1988 5-40 yrs.
150 Stratford 2,777 11,697 14,474 1,151 1991 5-40 yrs.
Chesapeake 1,236 4,952 6,188 480 1993 5-40 yrs.
Forsyth Corporate Center 326 2,474 2,800 222 1985 5-40 yrs.
The Knollwood-370 1,819 7,919 9,738 863 1994 5-40 yrs.
The Knollwood-380 9,004 13,039 22,043 1,450 1990 5-40 yrs.
RMIC 1,091 6,134 7,225 58 1998 5-40 yrs.
Robinhood 290 1,270 1,560 152 1989 5-40 yrs.
101 Stratford 1,205 6,904 8,109 195 1986 5-40 yrs.
Consolidated Center/Building I 625 2,178 2,803 61 1983 5-40 yrs.
Consolidated Center/Building II 625 4,431 5,056 125 1983 5-40 yrs.
Consolidated Center/Building III 680 3,569 4,249 100 1989 5-40 yrs.
Consolidated Center/Building IV 376 1,736 2,112 46 1989 5-40 yrs.
Champion Headquarters 1,725 6,365 8,090 179 1993 5-40 yrs.
Grassy Creek - Building G 1,439 3,357 4,796 47 1984 5-40 yrs.
Grassy Creek - Building H 1,606 3,748 5,354 52 1985 5-40 yrs.
Grassy Creek - Building I 1,835 4,283 6,118 60 1986 5-40 yrs.
Hampton Park - Building 5 318 742 1,060 14 1981 5-40 yrs.
Hampton Park - Building 6 371 866 1,237 12 1980 5-40 yrs.
Hampton Park - Building 7 212 495 707 7 1983 5-40 yrs.
Hampton Park - Building 8 212 495 707 7 1984 5-40 yrs.
Hampton Park - Building 9 212 495 707 7 1985 5-40 yrs.
5100 Indiana Avenue 490 1,143 1,633 16 1982 5-40 yrs.
Members Warehouse 602 1,406 2,008 20 1986 5-40 yrs.
Madison Park - Building 5610 211 493 704 7 1988 5-40 yrs.
Madison Park - Building 5620 941 2,196 3,137 30 1983 5-40 yrs.
Madison Park - Building 5630 1,486 3,468 4,954 47 1983 5-40 yrs.
Madison Park - Building 5635 893 2,083 2,976 28 1986 5-40 yrs.
Madison Park - Building 5640 3,632 8,476 12,108 116 1985 5-40 yrs.
Madison Park - Building 5650 1,081 2,522 3,603 34 1984 5-40 yrs.
Madison Park - Building 5660 1,910 4,456 6,366 61 1984 5-40 yrs.
Madison Park - Building 5655 5,891 13,753 19,644 188 1987 5-40 yrs.
711 Almondridge 301 702 1,003 10 1988 5-40 yrs.
710 Almondridge 1,809 4,221 6,030 59 1989 5-40 yrs.
500 Northridge 1,789 4,174 5,963 58 1988 5-40 yrs.
520 Northridge 1,645 3,876 5,521 55 1988 5-40 yrs.
531 Northridge Warehouse 4,992 11,648 16,640 161 1989 5-40 yrs.
531 Northridge Office 766 1,788 2,554 25 1989 5-40 yrs.
540 Northridge 2,038 4,755 6,793 66 1987 5-40 yrs.
550 Northridge 472 1,102 1,574 15 1989 5-40 yrs.
US Airways 2,625 15,004 17,629 424 1970-1987 5-40 yrs.
University Commercial
Center-Landmark 03 429 1,907 2,336 191 1985 5-40 yrs.
University Commercial
Center-Archer 04 514 2,223 2,737 241 1986 5-40 yrs.
University Commercial
Center-Service Center 1 276 1,221 1,497 134 1983 5-40 yrs.
University Commercial
Center-Service Center 2 215 979 1,194 122 1983 5-40 yrs.
University Commercial
Center-Service Center 3 167 695 862 67 1984 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>
University Commercial
Center-Warehouse 1 -- 203 812 -- 7
University Commercial
Center-Warehouse 2 -- 196 786 -- 12
Westpoint Business Park-BMF (1) 795 3,181 -- --
Westpoint Business
Park-Luwabahnson -- 346 1,384 -- 1
Westpoint Business Park-3 & 4 (1) 120 480 -- 24
West Point Business Park -- 1,759 -- (518)(19) --
Westpoint Business Park-Wp 11 (1) 393 1,570 -- 65
Westpoint Business Park-Wp 12 (1) 382 1,531 -- 48
Westpoint Business Park-Wp 13 (1) 297 1,192 -- 45
Westpoint Business Park-Fairchild -- 640 2,577 -- --
Westpoint Business
Park-Warehouse5 -- 178 590 -- 265
Greenville, SC
385 Building 1 -- 1,413 1,401 -- 2,524
385 Land -- -- -- 1,800 --
Nationsbank Plaza -- 642 9,349 -- 1,315
Brookfield Plaza 4,703 1,489 8,437 -- 297
Brookfield-CRS Sirrine 11,884 3,022 17,125 -- --
Brookfield-YMCA 423 33 189 -- 16
Patewood I -- 942 5,016 -- 51
Patewood II -- 942 5,018 -- 100
Patewood III 5,343 835 4,733 -- 141
Patewood IV (27) 1,210 6,856 -- --
Patewood V 4,714 1,677 9,503 -- --
Patewood VI -- 2,375 7,141 -- 326
769 Pelham Rd. -- 705 2,778 -- --
Patewood Business Center 2,541 1,312 7,436 -- 111
Jacksonville, FL
Belfort Park I -- 1,322 4,285 83 194
Belfort Park II -- 831 5,066 52 400
Belfort Parkway III -- 647 4,027 41 537
Belfort Park VI -- -- -- 447 --
Belfort Park VII -- -- -- 926 --
CIGNA Building -- 381 1,592 24 155
Harry James Building -- 272 1,358 17 150
Independent Square -- 3,985 44,633 250 9,597
Three Oaks Plaza -- 1,630 14,036 102 744
Reflections 6,639 958 9,877 60 343
Southpoint Building -- 594 3,987 37 188
SWD Land Annex -- -- -- -- 5
Highwoods Center -- 1,143 6,476 -- 73
Life of the South Building -- 184 4,750 12 519
Tallahasse, FL
Blair Stone Building -- 1,550 32,988 -- 413
215 South Monroe St. Building -- 1,950 17,853 4 140
Shawnee Mission, KS
Corinth Square North Shops (7) 2,693 10,772 -- 322
Corinth Shops South (7) 1,043 4,172 -- 33
Fairway Shops 2,792 673 2,694 -- 80
Georgetown Marketplace 5,500 1,399 5,598 -- --
Prairie Village Shops 11,308 3,289 13,157 -- 407
Shannon Valley Shopping Center 6,583 1,669 6,678 -- 4
Trailwood III Shops 820 223 893 -- 4
Trailwood Shops -- 458 1,831 -- 65
Valencia Place -- -- -- -- 48
Westwood Shops -- 113 453 -- 2
Brymar Building -- 329 1,317 -- 21
Corinth Executive Square -- 514 2,054 -- 281
Corinth Office Building 911 529 2,116 -- 47
Fairway North Building 8,000 753 3,013 -- 140
Fairway West Building 4,775 851 3,402 -- 69
Hartford Office Building -- 568 2,271 -- 62
Land-Kansas -- 28,275 121 -- --
Nichols Building 966 490 1,959 -- 25
Oak Park Building -- 368 1,470 -- 144
Prairie Village Office Center -- 749 2,997 -- 108
Quivira Business Park A -- 191 447 -- 13
Quivira Business Park B -- 179 417 -- 6
Quivira Business Park C -- 189 440 -- --
Quivira Business Park D -- 154 360 -- --
Quivira Business Park E -- 251 586 -- --
Quivira Business Park F -- 171 400 -- 20
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
------------------------------------ Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (28) Depreciation Construction is Computed
- ----------------------------------- -------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
University Commercial
Center-Warehouse 1 203 819 1,022 79 1983 5-40 yrs.
University Commercial
Center-Warehouse 2 196 798 994 77 1983 5-40 yrs.
Westpoint Business Park-BMF 795 3,181 3,976 308 1986 5-40 yrs.
Westpoint Business
Park-Luwabahnson 346 1,385 1,731 135 1990 5-40 yrs.
Westpoint Business Park-3 & 4 120 504 624 49 1988 5-40 yrs.
West Point Business Park 1,241 -- 1,241 -- N/A N/A
Westpoint Business Park-Wp 11 393 1,635 2,028 166 1988 5-40 yrs.
Westpoint Business Park-Wp 12 382 1,579 1,961 151 1988 5-40 yrs.
Westpoint Business Park-Wp 13 297 1,237 1,534 118 1988 5-40 yrs.
Westpoint Business Park-Fairchild 640 2,577 3,217 250 1990 5-40 yrs.
Westpoint Business
Park-Warehouse5 178 855 1,033 180 1995 5-40 yrs.
Greenville, SC
385 Building 1 1,413 3,925 5,338 62 1998 5-40 yrs.
385 Land 1,800 -- 1,800 -- N/A N/A
Nationsbank Plaza 642 10,664 11,306 387 1973 5-40 yrs.
Brookfield Plaza 1,489 8,734 10,223 568 1987 5-40 yrs.
Brookfield-CRS Sirrine 3,022 17,125 20,147 993 1990 5-40 yrs.
Brookfield-YMCA 33 205 238 19 1990 5-40 yrs.
Patewood I 942 5,067 6,009 240 1985 5-40 yrs.
Patewood II 942 5,118 6,060 245 1987 5-40 yrs.
Patewood III 835 4,874 5,709 351 1989 5-40 yrs.
Patewood IV 1,210 6,856 8,066 397 1989 5-40 yrs.
Patewood V 1,677 9,503 11,180 551 1990 5-40 yrs.
Patewood VI 2,375 7,467 9,842 92 N/A 5-40 yrs.
769 Pelham Rd. 705 2,778 3,483 61 1989 5-40 yrs.
Patewood Business Center 1,312 7,547 8,859 443 1983 5-40 yrs.
Jacksonville, FL
Belfort Park I 1,405 4,479 5,884 141 1988 5-40 yrs.
Belfort Park II 883 5,466 6,349 164 1988 5-40 yrs.
Belfort Parkway III 688 4,564 5,252 189 1988 5-40 yrs.
Belfort Park VI 447 -- 447 -- N/A N/A
Belfort Park VII 926 -- 926 -- N/A N/A
CIGNA Building 405 1,747 2,152 59 1972 5-40 yrs.
Harry James Building 289 1,508 1,797 53 1982 5-40 yrs.
Independent Square 4,235 54,230 58,465 1,802 1975 5-40 yrs.
Three Oaks Plaza 1,732 14,780 16,512 458 1972 5-40 yrs.
Reflections 1,018 10,220 11,238 335 1985 5-40 yrs.
Southpoint Building 631 4,175 4,806 131 1980 5-40 yrs.
SWD Land Annex -- 5 5 -- N/A N/A
Highwoods Center 1,143 6,549 7,692 376 1991 5-40 yrs.
Life of the South Building 196 5,269 5,465 157 1964 5-40 yrs.
Tallahasse, FL
Blair Stone Building 1,550 33,401 34,951 1,015 1994 5-40 yrs.
215 South Monroe St. Building 1,954 17,993 19,947 367 1976 5-40 yrs.
Shawnee Mission, KS
Corinth Square North Shops 2,693 11,094 13,787 129 1962 5-40 yrs.
Corinth Shops South 1,043 4,205 5,248 50 1953 5-40 yrs.
Fairway Shops 673 2,774 3,447 36 1940 5-40 yrs.
Georgetown Marketplace 1,399 5,598 6,997 74 1974 5-40 yrs.
Prairie Village Shops 3,289 13,564 16,853 165 1948 5-40 yrs.
Shannon Valley Shopping Center 1,669 6,682 8,351 86 1988 5-40 yrs.
Trailwood III Shops 223 897 1,120 10 1986 5-40 yrs.
Trailwood Shops 458 1,896 2,354 23 1968 5-40 yrs.
Valencia Place -- 48 48 -- N/A 5-40 yrs.
Westwood Shops 113 455 568 5 1926 5-40 yrs.
Brymar Building 329 1,338 1,667 17 1968 5-40 yrs.
Corinth Executive Square 514 2,335 2,849 26 1973 5-40 yrs.
Corinth Office Building 529 2,163 2,692 25 1960 5-40 yrs.
Fairway North Building 753 3,153 3,906 37 1985 5-40 yrs.
Fairway West Building 851 3,471 4,322 39 1983 5-40 yrs.
Hartford Office Building 568 2,333 2,901 26 1978 5-40 yrs.
Land-Kansas 28,275 121 28,396 1 N/A N/A
Nichols Building 490 1,984 2,474 23 1978 5-40 yrs.
Oak Park Building 368 1,614 1,982 18 1976 5-40 yrs.
Prairie Village Office Center 749 3,105 3,854 37 1960 5-40 yrs.
Quivira Business Park A 191 460 651 6 1975 5-40 yrs.
Quivira Business Park B 179 423 602 5 1973 5-40 yrs.
Quivira Business Park C 189 440 629 5 1973 5-40 yrs.
Quivira Business Park D 154 360 514 4 1973 5-40 yrs.
Quivira Business Park E 251 586 837 7 1973 5-40 yrs.
Quivira Business Park F 171 420 591 5 1973 5-40 yrs.
</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>
QUIVIRA Business Park G -- 205 477 -- --
QUIVIRA Business Park H -- 175 407 -- --
QUIVIRA Business Park J -- 360 839 -- 5
QUIVIRA Business Park L -- 98 228 -- --
QUIVIRA Business Park K -- 95 222 -- --
QUIVIRA Business Park SWB -- 257 600 -- 125
Kansas City, MO
48th & Penn (15) 418 3,765 -- 472
Balcony Retail (15) 889 8,002 -- --
Brookside Shopping Center 4,078 2,002 8,602 154 642
Court of the Penguins (15) 566 5,091 -- 101
Colonial Shops -- 138 550 -- 24
Crestwood Shops -- 253 1,013 -- 47
Esplanade (15) 748 6,734 -- 6
Land Under Ground Leases Retail -- 9,789 115 -- --
Halls Block (15) 275 2,478 -- 1
Kenilworth -- 113 452 -- --
Macy's Block (15) 504 4,536 -- --
Millcreek Retail (15) 602 5,422 -- 500
Nichols Block Retail (15) 600 5,402 -- --
96th & Nall Shops -- 99 397 -- 7
Plaza Central (15) 405 3,649 -- 1
Plaza Savings South (15) 357 3,211 -- 1,049
Romanelli Annex Shops -- 24 97 -- --
Red Bridge Shops -- 1,091 4,364 -- 54
Romanelli Shops -- 219 875 -- 108
Seville Shops West -- 300 2,696 -- --
Seville Square -- -- -- -- 368
Swanson Block (15) 949 8,537 -- 37
Theater Block (15) 1,197 10,769 -- 41
Time Block Retail (15) 1,292 11,627 -- 805
Triangle (15) 308 2,771 -- --
Cole Garden Apartments -- 22 122 -- --
Corinth Gardens -- 283 1,603 -- 39
Coach House North 20,000 1,604 9,092 -- 127
Coach House South 4,500 3,707 21,008 -- 51
Coach Lamp -- 870 4,929 -- 59
Corinth Paddock -- 1,050 5,949 -- 92
Corinth Place 4,500 639 3,623 -- 6
Rental Houses -- -- -- -- --
Kenilworth 7,379 2,160 12,240 -- 177
Kirkwood Circle -- 3,000 -- -- 1
Mission Valley 1,107 576 3,266 -- 29
Neptune 3,498 1,073 6,079 -- 44
Parklane -- 273 1,548 -- 4
Penn Wick Apartments -- 31 175 -- --
Regency House 4,294 1,853 10,500 -- 361
St. Charles Apartments -- -- -- -- --
Sulgrave 7,974 2,621 14,855 -- (30)
Tama Apartments -- -- -- -- --
Wornall Road Apartments -- 30 171 -- --
4900 Main Building -- 12,809 -- 46
63rd & Brookside Building -- 71 283 -- 7
Balcony Office (15) 65 585 -- 82
Bannister Business Center 1,157 306 713 -- 76
Challenger Inc. 13,500 -- -- -- --
Esplanade Block Office (15) 375 3,374 -- 2
Marley Continental Homes of KS -- 180 1,620 -- --
Millcreek Office (15) 79 710 -- 129
Land - Missouri -- 3,794 188 -- --
Nichols Block Office (15) 74 668 -- --
One Ward Parkway -- 666 2,663 -- 54
Plaza Land Company -- 50 -- -- --
Park Plaza Building (15) 1,352 5,409 -- 33
Parkway Building -- 395 1,578 -- 130
Romanelli Annex Office Building -- 73 294 -- 6
Red Bridge Professional Building -- 405 1,621 -- 78
Two Brush Creek Plaza -- 961 3,845 -- 44
Theatre Block Office (15) 242 2,179 -- --
Time Block Office (15) 199 1,792 -- 4
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
------------------------------------ Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (28) Depreciation Construction is Computed
- ---------------------------------- -------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
QUIVIRA Business Park G 205 477 682 6 1973 5-40 yrs.
QUIVIRA Business Park H 175 407 582 8 1973 5-40 yrs.
QUIVIRA Business Park J 360 844 1,204 10 1973 5-40 yrs.
QUIVIRA Business Park L 98 228 326 3 1985 5-40 yrs.
QUIVIRA Business Park K 95 222 317 8 1985 5-40 yrs.
QUIVIRA Business Park SWB 257 725 982 8 1973 5-40 yrs.
Kansas City, MO
48th & Penn 418 4,237 4,655 56 1948 5-40 yrs.
Balcony Retail 889 8,002 8,891 119 1925 5-40 yrs.
Brookside Shopping Center 2,156 9,244 11,400 101 1919 5-40 yrs.
Court of the Penguins 566 5,192 5,758 79 1945 5-40 yrs.
Colonial Shops 138 574 712 7 1907 5-40 yrs.
Crestwood Shops 253 1,060 1,313 13 1932 5-40 yrs.
Esplanade 748 6,740 7,488 100 1928 5-40 yrs.
Land Under Ground Leases Retail 9,789 115 9,904 1 N/A N/A
Halls Block 275 2,479 2,754 37 1964 5-40 yrs.
Kenilworth 113 452 565 5 1965 5-40 yrs.
Macy's Block 504 4,536 5,040 67 1926 5-40 yrs.
Millcreek Retail 602 5,922 6,524 81 1920 5-40 yrs.
Nichols Block Retail 600 5,402 6,002 80 1930 5-40 yrs.
96th & Nall Shops 99 404 503 5 1976 5-40 yrs.
Plaza Central 405 3,650 4,055 54 1958 5-40 yrs.
Plaza Savings South 357 4,260 4,617 48 1948 5-40 yrs.
Romanelli Annex Shops 24 97 121 1 1963 5-40 yrs.
Red Bridge Shops 1,091 4,418 5,509 52 1959 5-40 yrs.
Romanelli Shops 219 983 1,202 11 1925 5-40 yrs.
Seville Shops West 300 2,696 2,996 40 1980 5-40 yrs.
Seville Square -- 368 368 10 N/A N/A
Swanson Block 949 8,574 9,523 127 1967 5-40 yrs.
Theater Block 1,197 10,810 12,007 160 1928 5-40 yrs.
Time Block Retail 1,292 12,432 13,724 172 1929 5-40 yrs.
Triangle 308 2,771 3,079 41 1925 5-40 yrs.
Cole Garden Apartments 22 122 144 1 1960 5-40 yrs.
Corinth Gardens 283 1,642 1,925 19 1961 5-40 yrs.
Coach House North 1,604 9,219 10,823 106 1986 5-40 yrs.
Coach House South 3,707 21,059 24,766 244 1984 5-40 yrs.
Coach Lamp 870 4,988 5,858 58 1961 5-40 yrs.
Corinth Paddock 1,050 6,041 7,091 70 1973 5-40 yrs.
Corinth Place 639 3,629 4,268 42 1987 5-40 yrs.
Rental Houses -- -- -- -- 1971-1989 5-40 yrs.
Kenilworth 2,160 12,417 14,577 143 1965 5-40 yrs.
Kirkwood Circle 3,000 1 3,001 -- N/A N/A
Mission Valley 576 3,295 3,871 38 1964 5-40 yrs.
Neptune 1,073 6,123 7,196 71 1988 5-40 yrs.
Parklane 273 1,552 1,825 18 1924 5-40 yrs.
Penn Wick Apartments 31 175 206 2 1965 5-40 yrs.
Regency House 1,853 10,861 12,714 145 1960 5-40 yrs.
St. Charles Apartments -- -- -- -- 1922 5-40 yrs.
Sulgrave 2,621 14,825 17,446 190 1967 5-40 yrs.
Tama Apartments -- -- -- -- 1965 5-40 yrs.
Wornall Road Apartments 30 171 201 2 1918 5-40 yrs.
4900 Main Building -- 12,855 12,855 159 1986 5-40 yrs.
63rd & Brookside Building 71 290 361 3 1919 5-40 yrs.
Balcony Office 65 667 732 7 1928 5-40 yrs.
Bannister Business Center 306 789 1,095 9 1985 5-40 yrs.
Challenger Inc. -- -- -- -- N/A N/A
Esplanade Block Office 375 3,376 3,751 39 1945 5-40 yrs.
Marley Continental Homes of KS 180 1,620 1,800 19 N/A 5-40 yrs.
Millcreek Office 79 839 918 8 1925 5-40 yrs.
Land - Missouri 3,794 188 3,982 2 N/A 5-40 yrs.
Nichols Block Office 74 668 742 8 1938 5-40 yrs.
One Ward Parkway 666 2,717 3,383 44 1980 5-40 yrs.
Plaza Land Company 50 -- 50 -- N/A N/A
Park Plaza Building 1,352 5,442 6,794 72 1983 5-40 yrs.
Parkway Building 395 1,708 2,103 23 1906-1910 5-40 yrs.
Romanelli Annex Office Building 73 300 373 3 1963 5-40 yrs.
Red Bridge Professional Building 405 1,699 2,104 19 1972 5-40 yrs.
Two Brush Creek Plaza 961 3,889 4,850 49 1983 5-40 yrs.
Theatre Block Office 242 2,179 2,421 25 1928 5-40 yrs.
Time Block Office 199 1,796 1,995 21 1945 5-40 yrs.
</TABLE>
F-34
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
---------------------- ----------------------------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- -------------------------------- ------------- ------- -------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Memphis, TN
Atrium I & II -- 1,530 6,121 40 133
Centrum -- 1,013 5,488 -- 91
Colonnade -- -- -- 1,300 7,996
Hickory Hill Medical Plaza -- 398 2,256 -- 4
3400 Players Club Parkway -- 1,005 3,816 -- 1,695
International Place Phase II -- 4,847 27,469 -- 858
Kirby Centre -- 525 2,973 -- 77
International Place Phase III -- -- -- 1,566 --
Southwind Office Center "A" -- 996 5,643 -- 26
Southwind Office Center "B" -- 1,356 7,684 -- 259
Southwind Office Center "C" -- 1,070 3,834 -- 839
Norfolk, VA
Battlefield Business Center II 2,680 774 4,387 -- --
Greenbriar Business Center 2,730 936 5,305 -- 55
Hampton Center Two -- -- -- 2 --
Hampton Center Three -- -- -- 2 --
Highwoods Centre -- 2 7,257 -- 98
Riverside II -- -- -- 483 --
Riverside Building -- 1,495 5,963 -- 319
Nashville, TN
3401 Westend -- 4,956 19,728 -- 1,153
5310 Maryland Way -- 1,555 6,201 -- 50
Ayers Land -- -- -- 1,164 --
Southpointe -- -- -- 1,655 7,961
BNA Corporate Center 11,465 -- 19,510 -- 710
Century City Plaza I -- 903 3,612 -- 310
Cool Springs - Building II -- -- -- 6,796 --
Cool Springs I -- -- -- 1,983 11,477
Eastpark 1, 2, 3 3,956 2,371 9,427 -- 842
Grassmere -- 1,779 -- (348)(24) --
Grassmere I 2,817 1,251 7,091 -- 594
Grassmere II 4,341 2,260 12,804 -- 234
Grassmere III 4,984 1,340 7,592 -- 5
Highwoods Plaza I -- 1,772 6,380 -- 2,611
Highwoods Plaza II -- 1,448 6,948 -- 1,214
Harpeth On The Green II -- 1,419 5,677 1 305
Harpeth on the Green III -- 1,658 6,633 2 289
Harpeth on the Green IV -- 1,709 6,835 5 371
Harpeth on the Green V -- -- -- 662 5,566
Lakeview Ridge -- 1,768 6,249 -- 166
Lakeview Ridge II -- -- -- 557 5,297
Ridge Development -- 1,960 -- (1,870)(25) --
The Sparrow Building -- 1,262 5,047 -- 73
Grassmere/Thousdale Land -- 760 -- -- --
Winners Circle -- 1,495 7,072 2 181
Orlando, FL
Sunport Center -- 1,505 9,777 -- 102
Oakridge Center -- 4,700 18,761 -- 226
Corporate Square -- 900 1,717 -- 340
Executive Point Towers -- 2,200 7,230 -- 265
Sandlake Southwest 3,528 1,025 4,049 -- 3
Lakeview Office Park -- 5,400 13,994 -- 353
2699 Lee Road Building -- 1,500 6,003 -- 293
MetroWest Center 3,482 1,344 7,618 -- 108
Landmark I -- 6,785 28,243 -- 42
Landmark II -- 6,785 28,206 -- 105
C N A Maitland I -- 1,858 16,129 -- --
C N A Maitland II -- 743 2,639 -- 905
Hard Rock Caf- -- 1,305 3,570 -- --
Metro West Land -- -- -- 5,505 --
One Winter Park 2,294 1,000 3,652 -- 139
The Palladium -- 1,400 5,500 -- 59
201 Pine Street Building -- 4,400 29,836 -- 700
Capital Plaza -- -- -- 2,970 --
Premier Point North -- 800 3,037 -- 80
Premier Point South -- 600 3,404 -- 103
Interlachen Village 2,081 1,100 2,689 -- 46
Signature Plaza -- 4,300 30,294 -- 1,501
Skyline Center -- 700 2,748 -- 58
Southwest Corporate Center 3,666 991 5,613 -- --
Research Triangle, NC
Blue Ridge II -- 434 (2) 29 1,429
Blue Ridge I -- 722 4,538 -- 959
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
----------------------------------- Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (28) Depreciation Construction is Computed
- -------------------------------- ------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Memphis, TN
Atrium I & II 1,570 6,254 7,824 321 1984 5-40 yrs.
Centrum 1,013 5,579 6,592 204 1979 5-40 yrs.
Colonnade 1,300 7,996 9,296 209 1998 5-40 yrs.
Hickory Hill Medical Plaza 398 2,260 2,658 131 1988 5-40 yrs.
3400 Players Club Parkway 1,005 5,511 6,516 341 1997 5-40 yrs.
International Place Phase II 4,847 28,327 33,174 1,769 1988 5-40 yrs.
Kirby Centre 525 3,050 3,575 176 1984 5-40 yrs.
International Place Phase III 1,566 -- 1,566 -- N/A N/A
Southwind Office Center "A" 996 5,669 6,665 333 1991 5-40 yrs.
Southwind Office Center "B" 1,356 7,943 9,299 449 1990 5-40 yrs.
Southwind Office Center "C" 1,070 4,673 5,743 4 1998 5-40 yrs.
Norfolk, VA
Battlefield Business Center II 774 4,387 5,161 254 1987 5-40 yrs.
Greenbriar Business Center 936 5,360 6,296 312 1984 5-40 yrs.
Hampton Center Two 2 -- 2 -- N/A N/A
Hampton Center Three 2 -- 2 -- N/A N/A
Highwoods Centre 2 7,355 7,357 22 N/A 5-40 yrs.
Riverside II 483 -- 483 -- N/A N/A
Riverside Building 1,495 6,282 7,777 193 1988 5-40 yrs.
Nashville, TN
3401 Westend 4,956 20,881 25,837 1,565 1982 5-40 yrs.
5310 Maryland Way 1,555 6,251 7,806 424 1994 5-40 yrs.
Ayers Land 1,164 -- 1,164 -- N/A N/A
Southpointe 1,655 7,961 9,616 71 1998 5-40 yrs.
BNA Corporate Center -- 20,220 20,220 1,425 1985 5-40 yrs.
Century City Plaza I 903 3,922 4,825 299 1987 5-40 yrs.
Cool Springs - Building II 6,796 -- 6,796 -- N/A 5-40 yrs.
Cool Springs I 1,983 11,477 13,460 66 N/A 5-40 yrs.
Eastpark 1, 2, 3 2,371 10,269 12,640 838 1978 5-40 yrs.
Grassmere 1,431 -- 1,431 -- N/A N/A
Grassmere I 1,251 7,685 8,936 468 1984 5-40 yrs.
Grassmere II 2,260 13,038 15,298 798 1985 5-40 yrs.
Grassmere III 1,340 7,597 8,937 441 1990 5-40 yrs.
Highwoods Plaza I 1,772 8,991 10,763 843 1996 5-40 yrs.
Highwoods Plaza II 1,448 8,162 9,610 525 1997 5-40 yrs.
Harpeth On The Green II 1,420 5,982 7,402 360 1984 5-40 yrs.
Harpeth on the Green III 1,660 6,922 8,582 396 1987 5-40 yrs.
Harpeth on the Green IV 1,714 7,206 8,920 429 1989 5-40 yrs.
Harpeth on the Green V 662 5,566 6,228 164 1998 5-40 yrs.
Lakeview Ridge 1,768 6,415 8,183 355 1986 5-40 yrs.
Lakeview Ridge II 557 5,297 5,854 148 1998 5-40 yrs.
Ridge Development 90 -- 90 -- N/A N/A
The Sparrow Building 1,262 5,120 6,382 292 1982 5-40 yrs.
Grassmere/Thousdale Land 760 -- 760 -- N/A N/A
Winners Circle 1,497 7,253 8,750 223 1987 5-40 yrs.
Orlando, FL
Sunport Center 1,505 9,879 11,384 301 1990 5-40 yrs.
Oakridge Center 4,700 18,987 23,687 576 1966-1992 5-40 yrs.
Corporate Square 900 2,057 2,957 84 1971 5-40 yrs.
Executive Point Towers 2,200 7,495 9,695 253 1978 5-40 yrs.
Sandlake Southwest 1,025 4,052 5,077 48 1986 5-40 yrs.
Lakeview Office Park 5,400 14,347 19,747 461 1975 5-40 yrs.
2699 Lee Road Building 1,500 6,296 7,796 185 1974 5-40 yrs.
MetroWest Center 1,344 7,726 9,070 465 1988 5-40 yrs.
Landmark I 6,785 28,285 35,070 624 1983 5-40 yrs.
Landmark II 6,785 28,311 35,096 631 1985 5-40 yrs.
C N A Maitland I 1,858 16,129 17,987 17 1998 5-40 yrs.
C N A Maitland II 743 3,544 4,287 18 1998 5-40 yrs.
Hard Rock Caf- 1,305 3,570 4,875 4 1998 5-40 yrs.
Metro West Land 5,505 -- 5,505 -- N/A N/A
One Winter Park 1,000 3,791 4,791 121 1982 5-40 yrs.
The Palladium 1,400 5,559 6,959 170 1988 5-40 yrs.
201 Pine Street Building 4,400 30,536 34,936 1,056 1980 5-40 yrs.
Capital Plaza 2,970 -- 2,970 -- N/A 5-40 yrs.
Premier Point North 800 3,117 3,917 100 1983 5-40 yrs.
Premier Point South 600 3,507 4,107 115 1983 5-40 yrs.
Interlachen Village 1,100 2,735 3,835 88 1987 5-40 yrs.
Signature Plaza 4,300 31,795 36,095 1,009 1986 5-40 yrs.
Skyline Center 700 2,806 3,506 86 1985 5-40 yrs.
Southwest Corporate Center 991 5,613 6,604 325 1984 5-40 yrs.
Research Triangle, NC
Blue Ridge II 463 1,427 1,890 445 1988 5-40 yrs.
Blue Ridge I 722 5,497 6,219 668 1982 5-40 yrs.
</TABLE>
F-35
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
----------------------- ----------------------------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- --------------------------------- ------------- -------- -------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
3404 North Duke Street -- 879 3,522 -- 1
Fairfield II -- 910 3,647 -- 519
3600 Glenwood Avenue -- -- -- -- 10,994
3645 Trust Drive - One North
Commerce Center 1,754 520 2,949 -- 48
3737 Glenwood Ave. -- -- -- -- 70
4020 North Roxboro Road -- 675 2,708 -- 1,222
4101 North Roxboro Road -- 1,059 4,243 -- 283
Fairfield I -- 805 3,227 -- 587
4201 Research Commons -- 1,204 7,715 -- 2,414
4301 Research Commons -- 900 7,425 -- 693
4401 Research Commons -- 1,249 8,929 -- 4,871
4501 Research Commons -- 785 4,448 -- 1,092
4800 North Park -- 2,678 17,673 -- 242
4900 North Park 1,440 770 1,989 -- 273
5000 North Park -- 1,010 4,697 -- 1,006
5200 Green's Dairy - One North
Commerce Center 585 169 959 -- 17
5220 Green's Dairy - One North
Commerce Center 1,057 382 2,165 -- 94
5301 Departure Drive 2,432 882 5,000 -- 6
4000 Aerial Center -- 541 2,163 -- 128
Amica -- 289 1,517 -- 80
Arrowwood -- 955 3,383 -- 258
Aspen -- 560 2,088 -- 270
Birchwood -- 201 907 -- 38
BTI -- -- 15,504 -- 10
BTI Houses -- 250 250 -- --
Capital Center -- 851 -- (629)(20) --
Cedar East -- 563 2,491 -- 247
Cedar West -- 563 2,475 -- 454
ClinTrials Research -- 2,497 12,798 -- 2,648
Colony Corporate Center -- 613 3,296 -- 598
Concourse -- 986 12,069 -- 679
Cape Fear -- 131 -- -- 2,612
Creekstone Crossing -- 728 3,841 -- 100
Cotton -- 460 1,844 -- 117
Catawba -- 125 (15) -- 1,928
Cottonwood -- 609 3,253 -- 22
Cypress -- 567 1,729 -- 141
Dogwood -- 766 2,777 -- 16
EPA Annex -- 2,601 10,920 -- 109
Expressway Warehouse -- 242 -- 4 1,894
Global Software -- 465 5,358 -- 2,102
Hawthorn -- 904 3,782 -- 73
Highwoods Health Club -- 142 524 -- 1,308
Holiday Inn Reservations Center -- 867 2,735 -- 136
Holly -- 300 1,144 -- 44
Healthsource -- 1,294 10,593 10 1,620
Highwoods Tower One -- 203 16,914 -- 544
Highwoods Centre -- 532 5,960 -- 877
Ironwood -- 319 1,276 -- 353
Kaiser -- 133 3,625 -- 606
Laurel -- 884 2,524 -- 53
Lake Plaza East -- 856 4,893 -- 696
Highwoods Office Center North -- 1,103 49 (387)(21) --
Highwoods Office Center South -- 2,518 -- -- --
Leatherwood -- 213 851 -- 413
Martin Land -- -- -- 3,409 --
A4 Health Systems -- 717 3,418 -- 1,297
Creekstone Park -- 796 -- (647)(22) --
Northpark I -- 405 -- 93 3,542
North Park - Land -- 962 -- 39 --
Phase I - One North Commerce
Center 1,961 768 4,353 -- 265
'W' Building - One North
Commerce Center 3,737 1,163 6,592 -- 1,329
Overlook -- -- -- -- 42
Pamlico/Roanoke -- 269 -- 20 11,087
Phoenix -- 394 2,019 -- 40
Raleigh Corp Center Lot D -- -- -- 2,039 --
4101 Research Commons -- 1,349 -- (1,349)(23) 3
Rexwoods Center I (4) 775 -- 103 3,691
Rexwoods II -- 355 (12) 7 1,863
Rexwoods III -- 886 -- 34 2,902
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
------------------------------------ Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (28) Depreciation Construction is Computed
- --------------------------------- -------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
3404 North Duke Street 879 3,523 4,402 305 1985 5-40 yrs.
Fairfield II 910 4,166 5,076 401 1989 5-40 yrs.
3600 Glenwood Avenue -- 10,994 10,994 492 1986 5-40 yrs.
3645 Trust Drive - One North
Commerce Center 520 2,997 3,517 180 1984 5-40 yrs.
3737 Glenwood Ave. -- 70 70 -- N/A N/A
4020 North Roxboro Road 675 3,930 4,605 236 1989 5-40 yrs.
4101 North Roxboro Road 1,059 4,526 5,585 382 1984 5-40 yrs.
Fairfield I 805 3,814 4,619 291 1987 5-40 yrs.
4201 Research Commons 1,204 10,129 11,333 2,056 1991 5-40 yrs.
4301 Research Commons 900 8,118 9,018 756 1989 5-40 yrs.
4401 Research Commons 1,249 13,800 15,049 2,984 1987 5-40 yrs.
4501 Research Commons 785 5,540 6,325 803 1985 5-40 yrs.
4800 North Park 2,678 17,915 20,593 2,086 1985 5-40 yrs.
4900 North Park 770 2,262 3,032 299 1984 5-40 yrs.
5000 North Park 1,010 5,703 6,713 911 1980 5-40 yrs.
5200 Green's Dairy - One North
Commerce Center 169 976 1,145 64 1984 5-40 yrs.
5220 Green's Dairy - One North
Commerce Center 382 2,259 2,641 135 1984 5-40 yrs.
5301 Departure Drive 882 5,006 5,888 291 1984 5-40 yrs.
4000 Aerial Center 541 2,291 2,832 124 1992 5-40 yrs.
Amica 289 1,597 1,886 236 1983 5-40 yrs.
Arrowwood 955 3,641 4,596 517 1979 5-40 yrs.
Aspen 560 2,358 2,918 333 1980 5-40 yrs.
Birchwood 201 945 1,146 129 1983 5-40 yrs.
BTI -- 15,514 15,514 310 1995 5-40 yrs.
BTI Houses 250 250 500 2 1970 5-40 yrs.
Capital Center 222 -- 222 -- N/A N/A
Cedar East 563 2,738 3,301 392 1981 5-40 yrs.
Cedar West 563 2,929 3,492 472 1981 5-40 yrs.
ClinTrials Research 2,497 15,446 17,943 146 1998 5-40 yrs.
Colony Corporate Center 613 3,894 4,507 507 1985 5-40 yrs.
Concourse 986 12,748 13,734 1,560 1986 5-40 yrs.
Cape Fear 131 2,612 2,743 1,453 1979 5-40 yrs.
Creekstone Crossing 728 3,941 4,669 368 1990 5-40 yrs.
Cotton 460 1,961 2,421 152 1972 5-40 yrs.
Catawba 125 1,913 2,038 1,088 1980 5-40 yrs.
Cottonwood 609 3,275 3,884 380 1983 5-40 yrs.
Cypress 567 1,870 2,437 276 1980 5-40 yrs.
Dogwood 766 2,793 3,559 319 1983 5-40 yrs.
EPA Annex 2,601 11,029 13,630 1,076 1966 5-40 yrs.
Expressway Warehouse 246 1,894 2,140 398 1990 5-40 yrs.
Global Software 465 7,460 7,925 948 1996 5-40 yrs.
Hawthorn 904 3,855 4,759 1,808 1987 5-40 yrs.
Highwoods Health Club 142 1,832 1,974 28 1998 5-40 yrs.
Holiday Inn Reservations Center 867 2,871 3,738 337 1984 5-40 yrs.
Holly 300 1,188 1,488 162 1984 5-40 yrs.
Healthsource 1,304 12,213 13,517 887 1996 5-40 yrs.
Highwoods Tower One 203 17,458 17,661 3,497 1991 5-40 yrs.
Highwoods Centre 532 6,837 7,369 30 1998 5-40 yrs.
Ironwood 319 1,629 1,948 262 1978 5-40 yrs.
Kaiser 133 4,231 4,364 1,313 1988 5-40 yrs.
Laurel 884 2,577 3,461 292 1982 5-40 yrs.
Lake Plaza East 856 5,589 6,445 851 1984 5-40 yrs.
Highwoods Office Center North 716 49 765 14 N/A N/A
Highwoods Office Center South 2,518 -- 2,518 -- N/A N/A
Leatherwood 213 1,264 1,477 192 1979 5-40 yrs.
Martin Land 3,409 -- 3,409 -- N/A N/A
A4 Health Systems 717 4,715 5,432 422 1996 5-40 yrs.
Creekstone Park 149 -- 149 -- N/A N/A
Northpark I 498 3,542 4,040 194 1997 5-40 yrs.
North Park - Land 1,001 -- 1,001 -- N/A N/A
Phase I - One North Commerce
Center 768 4,618 5,386 279 1981 5-40 yrs.
'W' Building - One North
Commerce Center 1,163 7,921 9,084 523 1983 5-40 yrs.
Overlook -- 42 42 -- N/A N/A
Pamlico/Roanoke 289 11,087 11,376 2,515 1980 5-40 yrs.
Phoenix 394 2,059 2,453 248 1990 5-40 yrs.
Raleigh Corp Center Lot D 2,039 -- 2,039 -- N/A N/A
4101 Research Commons -- 3 3 -- N/A N/A
Rexwoods Center I 878 3,691 4,569 933 1990 5-40 yrs.
Rexwoods II 362 1,851 2,213 242 1993 5-40 yrs.
Rexwoods III 920 2,902 3,822 550 1992 5-40 yrs.
</TABLE>
F-36
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
----------------------- --------------------------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- --------------------------------- -------------- -------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Rexwoods IV -- 586 -- -- 3,629
Rexwoods V -- 1,301 4,977 -- 973
Riverbirch -- 448 -- 21 4,434
Situs I -- 693 2,917 (1) 1,476
Situs II -- -- -- 718 4,736
Six Forks Center I -- 666 2,663 -- 477
Six Forks Center II -- 1,086 4,345 -- 427
Six Forks Center III -- 862 4,411 -- 202
Smoketree Tower -- 2,353 11,802 -- 2,724
South Square I (4) 606 3,785 -- 553
South Square II -- 525 4,710 -- 270
Sycamore -- 255 -- -- 5,809
Building 2A - Triangle Business
Center (4) 377 4,004 -- 702
Building 2B - Triangle Business
Center (4) 118 1,225 -- 212
Building 3 - Triangle Business
Center (4) 409 5,349 -- 656
Building 7 - Triangle Business
Center (4) 414 6,301 -- 544
Willow Oak -- 458 4,685 -- 1,791
Richmond, VA
Highwoods Distribution Center -- -- -- 2,763 --
Airport Center One -- 708 4,374 -- 1,071
Airport Center 2 -- 362 2,896 -- 16
1309 Cary Street -- 171 685 -- 71
4900 Cox -- 1,324 5,305 -- 155
Technology Park 1 -- 541 2,166 -- 140
East Shore One -- -- -- 114 --
Eastshore II -- -- -- -- 29
Grove Park II -- -- -- 570 --
Grove Park -- 349 2,685 470 3,075
Highwoods One -- 1,846 8,613 -- 1,977
Richfood Holdings Building -- 785 5,170 -- 1,322
End of Cox Road Land -- 966 -- (296)(26) --
Highwoods Five -- 806 4,948 -- 831
Sadler & Cox Land -- -- -- 1,657 --
Development Opportunity Strip -- 26 -- -- --
Liberty Mutual Building 3,351 1,205 4,819 -- 488
Waterfront Plaza (5) 585 2,347 -- 257
Markel-American -- 1,372 8,667 -- 347
North Park Building -- 2,163 8,659 -- 299
Hamilton Beach Building (5) 1,086 4,344 -- 148
One Shockoe Plaza -- -- -- -- 19,277
Westshore I 358 1,431 -- 24
Westshore II -- 545 2,181 -- 30
West Shore III -- 961 3,601 -- 1,131
Stony Point I -- 1,384 11,445 -- 864
Stony Point II -- -- -- 2,983 --
Technology Park 2 -- 264 1,058 -- 41
Virginia Center Technology Park -- 1,438 5,858 -- 319
Virginia Mutual -- -- -- 907 --
Vantage Place-A -- 203 811 -- 86
Vantage Place-B -- 233 931 -- 126
Vantage Place-C -- 235 940 -- 70
Vantage Place-D -- 218 873 -- 186
Vantage Point -- 1,089 4,354 -- 505
South Florida
2828 Coral Way Building -- 1,100 4,303 -- 86
The Atrium at Coral Gables -- 3,000 16,398 -- 267
Atrium West 4,166 1,300 5,564 -- 96
Avion -- 800 4,307 -- 87
Centrum Plaza 2,791 1,000 3,545 -- 53
Comeau Building -- 460 3,683 -- 61
Corporate Square -- 1,750 3,385 -- 92
Highwoods Cypress Creek -- -- -- 4,525 --
Dadeland Towers North 6,376 3,700 18,571 -- 477
Debartolo Land -- -- -- 1,722 --
Highwoods Court at Doral -- 3,423 13,692 -- 1,301
The 1800 Eller Drive Building -- -- 9,724 -- 336
Emerald Hills Plaza I -- 1,450 5,830 -- 89
Emerald Hills Plaza II -- 1,450 7,030 -- 112
Gulf Atlantic Center -- -- 11,237 3 247
Horizon One -- 998 6,070 -- 461
Highwoods Park H1 -- 215 542 -- 15
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
------------------------------------ Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (28) Depreciation Construction is Computed
- --------------------------------- -------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rexwoods IV 586 3,629 4,215 609 1995 5-40 yrs.
Rexwoods V 1,301 5,950 7,251 174 1998 5-40 yrs.
Riverbirch 469 4,434 4,903 1,185 1987 5-40 yrs.
Situs I 692 4,393 5,085 583 1996 5-40 yrs.
Situs II 718 4,736 5,454 28 1998 5-40 yrs.
Six Forks Center I 666 3,140 3,806 266 1982 5-40 yrs.
Six Forks Center II 1,086 4,772 5,858 423 1983 5-40 yrs.
Six Forks Center III 862 4,613 5,475 516 1987 5-40 yrs.
Smoketree Tower 2,353 14,526 16,879 2,095 1984 5-40 yrs.
South Square I 606 4,338 4,944 561 1988 5-40 yrs.
South Square II 525 4,980 5,505 579 1989 5-40 yrs.
Sycamore 255 5,809 6,064 333 1997 5-40 yrs.
Building 2A - Triangle Business
Center 377 4,706 5,083 859 1984 5-40 yrs.
Building 2B - Triangle Business
Center 118 1,437 1,555 214 1984 5-40 yrs.
Building 3 - Triangle Business
Center 409 6,005 6,414 1,071 1988 5-40 yrs.
Building 7 - Triangle Business
Center 414 6,845 7,259 862 1986 5-40 yrs.
Willow Oak 458 6,476 6,934 1,207 1995 5-40 yrs.
Richmond, VA
Highwoods Distribution Center 2,763 -- 2,763 -- N/A N/A
Airport Center One 708 5,445 6,153 260 1997 5-40 yrs.
Airport Center 2 362 2,912 3,274 57 1998 5-40 yrs.
1309 Cary Street 171 756 927 44 1987 5-40 yrs.
4900 Cox 1,324 5,460 6,784 438 1991 5-40 yrs.
Technology Park 1 541 2,306 2,847 194 1991 5-40 yrs.
East Shore One 114 -- 114 -- N/A N/A
Eastshore II -- 29 29 -- N/A N/A
Grove Park II 570 -- 570 -- N/A N/A
Grove Park 819 5,760 6,579 208 1997 5-40 yrs.
Highwoods One 1,846 10,590 12,436 1,006 1996 5-40 yrs.
Richfood Holdings Building 785 6,492 7,277 288 1997 5-40 yrs.
End of Cox Road Land 670 -- 670 -- N/A N/A
Highwoods Five 806 5,779 6,585 76 1998 5-40 yrs.
Sadler & Cox Land 1,657 -- 1,657 -- N/A N/A
Development Opportunity Strip 26 -- 26 -- N/A N/A
Liberty Mutual Building 1,205 5,307 6,512 277 1990 5-40 yrs.
Waterfront Plaza 585 2,604 3,189 268 1988 5-40 yrs.
Markel-American 1,372 9,014 10,386 136 1998 5-40 yrs.
North Park Building 2,163 8,958 11,121 583 1989 5-40 yrs.
Hamilton Beach Building 1,086 4,492 5,578 386 1986 5-40 yrs.
One Shockoe Plaza -- 19,277 19,277 1,008 1996 5-40 yrs.
Westshore I 358 1,455 1,813 103 1995 5-40 yrs.
Westshore II 545 2,211 2,756 148 1995 5-40 yrs.
West Shore III 961 4,732 5,693 296 1997 5-40 yrs.
Stony Point I 1,384 12,309 13,693 289 1990 5-40 yrs.
Stony Point II 2,983 -- 2,983 -- N/A N/A
Technology Park 2 264 1,099 1,363 95 1991 5-40 yrs.
Virginia Center Technology Park 1,438 6,177 7,615 705 1985 5-40 yrs.
Virginia Mutual 907 -- 907 -- N/A N/A
Vantage Place-A 203 897 1,100 105 1987 5-40 yrs.
Vantage Place-B 233 1,057 1,290 92 1988 5-40 yrs.
Vantage Place-C 235 1,010 1,245 93 1987 5-40 yrs.
Vantage Place-D 218 1,059 1,277 115 1988 5-40 yrs.
Vantage Point 1,089 4,859 5,948 437 1990 5-40 yrs.
South Florida
2828 Coral Way Building 1,100 4,389 5,489 132 1985 5-40 yrs.
The Atrium at Coral Gables 3,000 16,665 19,665 512 1984 5-40 yrs.
Atrium West 1,300 5,660 6,960 175 1983 5-40 yrs.
Avion 800 4,394 5,194 126 1985 5-40 yrs.
Centrum Plaza 1,000 3,598 4,598 110 1988 5-40 yrs.
Comeau Building 460 3,744 4,204 115 1926 5-40 yrs.
Corporate Square 1,750 3,477 5,227 111 1981 5-40 yrs.
Highwoods Cypress Creek 4,525 -- 4,525 -- N/A N/A
Dadeland Towers North 3,700 19,048 22,748 592 1972 5-40 yrs.
Debartolo Land 1,722 -- 1,722 -- N/A N/A
Highwoods Court at Doral 3,423 14,993 18,416 361 1987 5-40 yrs.
The 1800 Eller Drive Building -- 10,060 10,060 314 1983 5-40 yrs.
Emerald Hills Plaza I 1,450 5,919 7,369 181 1979 5-40 yrs.
Emerald Hills Plaza II 1,450 7,142 8,592 219 1979 5-40 yrs.
Gulf Atlantic Center 3 11,484 11,487 302 1986 5-40 yrs.
Horizon One 998 6,531 7,529 116 1985 5-40 yrs.
Highwoods Park H1 215 557 772 10 1984 5-40 yrs.
</TABLE>
F-37
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
----------------------- -----------------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- ---------------------------------- -------------- -------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
Highwoods Park H2 -- 532 1,838 -- 16
Highwoods Park A -- 462 1,680 -- 25
Highwoods Park B -- 388 1,362 -- 43
Highwoods Park C -- 1,121 3,962 -- 26
Highwoods Park D -- 1,123 3,865 -- 21
Highwoods Park E -- 1,142 3,981 -- 25
Highwoods Park F -- 382 1,284 -- 65
Highwoods Park G -- 346 2,155 -- 74
Highwoods Park J -- 326 2,380 -- 20
Highwoods Park L -- 6,375 -- -- 3
Highwoods Park M -- 714 4,133 -- 26
Highwoods Park N -- -- 114 -- 14
Highwoods Park P -- -- 96 -- 14
Palm Beach Gardens Office Park -- 1,000 4,510 -- 98
Pine Island Commons 3,037 1,750 4,175 -- 84
Sheraton Design Center -- 1,000 4,040 -- 524
Sunset Station Plaza -- 660 7,721 -- 67
Venture Corporate Center I -- 1,867 7,458 -- 419
Venture Corporate Center II -- 1,867 8,837 -- 135
Venture Corporate Center III -- 1,867 8,838 -- 128
Tampa, FL
5400 Gray Street -- 350 293 -- 7
Anchor Glass -- -- (109) 1,281 11,054
Atrium -- 1,639 9,286 -- 70
7201 - 7243B Bryan Dairy (11) 352 2,398 -- 1
7245 - 7279 Bryan Dairy (11) 352 2,396 -- 74
Benjamin Center #7 -- 296 1,678 -- 41
Benjamin Center #9 -- 300 1,699 -- 60
Brandywine I -- 667 1,904 -- 65
Brandywine II -- 483 965 -- 14
Bayshore Place 6,499 2,248 10,323 -- 9
Bay View -- 1,304 5,964 -- 48
Bay Vista Garden Center (14) 447 4,777 -- --
Bay Vista Garden Center II (14) 1,328 6,981 -- 366
Bay Vista Office Center (14) 935 4,480 -- 138
Bay Vista Retail Center (14) 283 1,135 -- --
Countryside Place -- 843 3,731 -- --
Clearwater Point -- 317 1,531 -- --
Cross Bayou -- 468 2,997 -- 9
Crossroads Office Center -- 561 3,342 -- 77
Clearwater Tower -- 1,601 5,955 -- 17
Cypress Center Land -- 1,410 -- -- --
Cypress West 2,113 615 4,988 -- 129
Brookwood Day Care Center -- 61 347 -- 24
Expo Building -- 171 969 -- 21
Interstate Corporate Center -- 1,412 5,647 -- 7,941
Feathersound II 2,291 800 7,282 -- 224
Fireman's Fund Building -- 500 4,107 -- 80
Fireman's Fund Land -- -- -- 1,000 --
Grand Plaza (Office) -- 1,100 7,676 -- 187
Grand Plaza (Retail) -- 840 10,647 -- 187
Federated -- -- -- 6,017 --
Horizon Office Building (2) -- 6,114 -- 120
IBP 8302 Laurel Fair Circle (12) 63 595 -- 16
IBP 8306 Laurel Fair Circle (12) 102 968 -- 16
IBP 8308 Laurel Fair Circle (12) 118 1,087 -- 37
IBP 4510 Oakfair Blvd (12) 118 1,110 -- 41
IBP 4514 Oakfair Blvd (12) 71 366 -- 304
IBP 4520 Oakfair Blvd (12) 173 1,621 -- 16
IBP 4524 Oakfair Blvd (12) 141 1,329 -- 37
IBP Land -- 3,781 -- -- --
Idlewild -- 623 3,859 -- 2
Lakeside (2) -- 7,200 -- 148
Lakepointe I (2) 2,100 31,078 -- 559
Lakeside Technology Center -- 1,325 8,084 -- 81
Mariner Square 2,474 650 2,821 -- 60
Marathon I (13) 215 1,059 -- 1
Marathon II (13) 215 1,049 -- --
Northside Square Office Building (9) 601 3,601 -- --
Northside Square Retail Building (9) 800 2,808 -- 3
Parkside (2) -- 9,193 -- 199
Sabal Pavilion - Phase I -- -- -- 660 7,949
Sabal Pavilion - Phase II -- -- -- 661 --
Pavillion Office Building (2) -- 16,022 -- 181
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
------------------------------------ Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (28) Depreciation Construction is Computed
- --------------------------------- -------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Highwoods Park H2 532 1,854 2,386 33 1984 5-40 yrs.
Highwoods Park A 462 1,705 2,167 30 1984 5-40 yrs.
Highwoods Park B 388 1,405 1,793 24 1984 5-40 yrs.
Highwoods Park C 1,121 3,988 5,109 70 1984 5-40 yrs.
Highwoods Park D 1,123 3,886 5,009 68 1984 5-40 yrs.
Highwoods Park E 1,142 4,006 5,148 70 1984 5-40 yrs.
Highwoods Park F 382 1,349 1,731 -- 1984 5-40 yrs.
Highwoods Park G 346 2,229 2,575 38 1984 5-40 yrs.
Highwoods Park J 326 2,400 2,726 42 1984 5-40 yrs.
Highwoods Park L 6,375 3 6,378 -- N/A N/A
Highwoods Park M 714 4,159 4,873 73 1984 5-40 yrs.
Highwoods Park N -- 128 128 2 1984 5-40 yrs.
Highwoods Park P -- 110 110 2 1984 5-40 yrs.
Palm Beach Gardens Office Park 1,000 4,608 5,608 145 1984 5-40 yrs.
Pine Island Commons 1,750 4,259 6,009 131 1985 5-40 yrs.
Sheraton Design Center 1,000 4,564 5,564 134 1982 5-40 yrs.
Sunset Station Plaza 660 7,788 8,448 181 1984 5-40 yrs.
Venture Corporate Center I 1,867 7,877 9,744 265 1982 5-40 yrs.
Venture Corporate Center II 1,867 8,972 10,839 277 1982 5-40 yrs.
Venture Corporate Center III 1,867 8,966 10,833 270 1982 5-40 yrs.
Tampa, FL
5400 Gray Street 350 300 650 9 1973 5-40 yrs.
Anchor Glass 1,281 10,945 12,226 263 1988 5-40 yrs.
Atrium 1,639 9,356 10,995 544 1989 5-40 yrs.
7201 - 7243B Bryan Dairy 352 2,399 2,751 53 1988 5-40 yrs.
7245 - 7279 Bryan Dairy 352 2,470 2,822 63 1987 5-40 yrs.
Benjamin Center #7 296 1,719 2,015 124 1991 5-40 yrs.
Benjamin Center #9 300 1,759 2,059 106 1989 5-40 yrs.
Brandywine I 667 1,969 2,636 22 1984 5-40 yrs.
Brandywine II 483 979 1,462 9 1984 5-40 yrs.
Bayshore Place 2,248 10,332 12,580 163 1990 5-40 yrs.
Bay View 1,304 6,012 7,316 141 1982 5-40 yrs.
Bay Vista Garden Center 447 4,777 5,224 106 1982 5-40 yrs.
Bay Vista Garden Center II 1,328 7,347 8,675 216 1997 5-40 yrs.
Bay Vista Office Center 935 4,618 5,553 131 1982 5-40 yrs.
Bay Vista Retail Center 283 1,135 1,418 26 1987 5-40 yrs.
Countryside Place 843 3,731 4,574 61 1988 5-40 yrs.
Clearwater Point 317 1,531 1,848 35 1981 5-40 yrs.
Cross Bayou 468 3,006 3,474 68 1982 5-40 yrs.
Crossroads Office Center 561 3,419 3,980 103 1981 5-40 yrs.
Clearwater Tower 1,601 5,972 7,573 136 1990 5-40 yrs.
Cypress Center Land 1,410 -- 1,410 -- N/A N/A
Cypress West 615 5,117 5,732 169 1985 5-40 yrs.
Brookwood Day Care Center 61 371 432 22 1986 5-40 yrs.
Expo Building 171 990 1,161 58 1981 5-40 yrs.
Interstate Corporate Center 1,412 13,588 15,000 302 N/A 5-40 yrs.
Feathersound II 800 7,506 8,306 225 1986 5-40 yrs.
Fireman's Fund Building 500 4,187 4,687 135 1982 5-40 yrs.
Fireman's Fund Land 1,000 -- 1,000 -- N/A N/A
Grand Plaza (Office) 1,100 7,863 8,963 250 1985 5-40 yrs.
Grand Plaza (Retail) 840 10,834 11,674 335 1985 5-40 yrs.
Federated 6,017 -- 6,017 -- N/A N/A
Horizon Office Building -- 6,234 6,234 194 1980 5-40 yrs.
IBP 8302 Laurel Fair Circle 63 611 674 13 1987 5-40 yrs.
IBP 8306 Laurel Fair Circle 102 984 1,086 22 1987 5-40 yrs.
IBP 8308 Laurel Fair Circle 118 1,124 1,242 28 1987 5-40 yrs.
IBP 4510 Oakfair Blvd 118 1,151 1,269 29 1987 5-40 yrs.
IBP 4514 Oakfair Blvd 71 670 741 15 1987 5-40 yrs.
IBP 4520 Oakfair Blvd 173 1,637 1,810 36 1987 5-40 yrs.
IBP 4524 Oakfair Blvd 141 1,366 1,507 30 1987 5-40 yrs.
IBP Land 3,781 -- 3,781 -- N/A N/A
Idlewild 623 3,861 4,484 73 1981 5-40 yrs.
Lakeside -- 7,348 7,348 222 1978 5-40 yrs.
Lakepointe I 2,100 31,637 33,737 958 1986 5-40 yrs.
Lakeside Technology Center 1,325 8,165 9,490 249 1984 5-40 yrs.
Mariner Square 650 2,881 3,531 87 1973 5-40 yrs.
Marathon I 215 1,060 1,275 24 1997 5-40 yrs.
Marathon II 215 1,049 1,264 23 1987 5-40 yrs.
Northside Square Office Building 601 3,601 4,202 80 1986 5-40 yrs.
Northside Square Retail Building 800 2,811 3,611 62 1986 5-40 yrs.
Parkside -- 9,392 9,392 285 1979 5-40 yrs.
Sabal Pavilion - Phase I 660 7,949 8,609 39 1998 5-40 yrs.
Sabal Pavilion - Phase II 661 -- 661 -- N/A N/A
Pavillion Office Building -- 16,203 16,203 494 1982 5-40 yrs.
</TABLE>
F-38
<PAGE>
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent
Initial Cost to Acquisition
------------------------- -----------------------
Building & Building &
Description Encumbrance Land Improvements Land Improvements
- -------------------------------- ------------- ---------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
Park Place -- -- -- 1,508 --
Pinebrook Business Center 2,219 -- (95) 1,234 9,613
USF&G -- 1,366 7,742 -- 1,370
Registry I -- 744 4,216 -- 120
Registry II -- 908 5,147 -- 211
Registry Square -- 344 1,951 -- 41
Rocky Point Land -- -- -- 3,484 --
Sabal Business Center I -- 375 2,127 -- 26
Sabal Business Center II 1,218 342 1,935 -- 99
Sabal Business Center III 840 290 1,642 -- 16
Sabal Business Center IV 2,078 819 4,638 -- --
Sabal Business Center V 2,497 1,026 5,813 -- 8
Sabal Business Center VI 5,838 1,609 9,116 -- 48
Sabal Business Center VII 4,749 1,519 8,605 -- 32
Sabal Lake Building -- 572 3,241 -- 146
Sabal Industrial Park Land -- -- -- 301 --
Sabal Park Plaza -- 611 3,460 -- 292
Sabal Tech Center -- 548 3,107 -- --
Summit Executive Centre -- 579 2,749 -- --
Spectrum (2) 1,450 14,173 -- 147
Starkey Road Center -- 383 2,163 -- 16
Turtle Creek 4900 Creekside Dr (10) 188 1,353 -- 51
Turtle Creek 4902 Creekside Dr (10) 72 514 -- 15
Turtle Creek 4904 Creekside Dr (10) 41 298 -- 7
Turtle Creek 4906 Creekside Dr (10) 75 541 -- 7
Turtle Creek 4908 Creekside Dr (8) 124 885 -- 18
Turtle Creek 4910 Creekside Dr (8) 171 1,223 -- --
Turtle Creek 4911 Creekside Dr (8) 200 1,434 -- --
Turtle Creek 4912 Creekside Dr (8) 29 211 -- --
Turtle Creek 4914 Creekside Dr (8) 65 464 -- --
Telecom Technology Center 1,250 11,224 -- 837
Tower Place -- 3,194 18,098 -- 533
Westshore Square 2,970 1,130 5,155 -- 18
REO Building -- 795 4,484 -- 91
FT Myers, FL
Sunrise Office Center -- 422 3,478 -- 61
----- ------ ----- -----
614,701 2,948,712 94,407 334,608
======= ========= ====== =======
<CAPTION>
Gross Amount at
Which Carried at Close of Period Life on
------------------------------------ Which
Building & Accumulated Date of Depreciation
Description Land Improvements Total (28) Depreciation Construction is Computed
- --------------------------------- -------- -------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Park Place 1,508 -- 1,508 -- N/A N/A
Pinebrook Business Center 1,234 9,518 10,752 210 1987 5-40 yrs.
USF&G 1,366 9,112 10,478 603 1988 5-40 yrs.
Registry I 744 4,336 5,080 274 1985 5-40 yrs.
Registry II 908 5,358 6,266 343 1987 5-40 yrs.
Registry Square 344 1,992 2,336 116 1988 5-40 yrs.
Rocky Point Land 3,484 -- 3,484 -- N/A N/A
Sabal Business Center I 375 2,153 2,528 124 1982 5-40 yrs.
Sabal Business Center II 342 2,034 2,376 124 1984 5-40 yrs.
Sabal Business Center III 290 1,658 1,948 97 1984 5-40 yrs.
Sabal Business Center IV 819 4,638 5,457 269 1984 5-40 yrs.
Sabal Business Center V 1,026 5,821 6,847 339 1988 5-40 yrs.
Sabal Business Center VI 1,609 9,164 10,773 531 1988 5-40 yrs.
Sabal Business Center VII 1,519 8,637 10,156 500 1990 5-40 yrs.
Sabal Lake Building 572 3,387 3,959 218 1986 5-40 yrs.
Sabal Industrial Park Land 301 -- 301 -- N/A N/A
Sabal Park Plaza 611 3,752 4,363 313 1987 5-40 yrs.
Sabal Tech Center 548 3,107 3,655 180 1989 5-40 yrs.
Summit Executive Centre 579 2,749 3,328 61 1988 5-40 yrs.
Spectrum 1,450 14,320 15,770 437 1984 5-40 yrs.
Starkey Road Center 383 2,179 2,562 48 1980 5-40 yrs.
Turtle Creek 4900 Creekside Dr 188 1,404 1,592 35 1985 5-40 yrs.
Turtle Creek 4902 Creekside Dr 72 529 601 12 1985 5-40 yrs.
Turtle Creek 4904 Creekside Dr 41 305 346 7 1985 5-40 yrs.
Turtle Creek 4906 Creekside Dr 75 548 623 12 1985 5-40 yrs.
Turtle Creek 4908 Creekside Dr 124 903 1,027 20 1985 5-40 yrs.
Turtle Creek 4910 Creekside Dr 171 1,223 1,394 27 1985 5-40 yrs.
Turtle Creek 4911 Creekside Dr 200 1,434 1,634 32 1985 5-40 yrs.
Turtle Creek 4912 Creekside Dr 29 211 240 5 1985 5-40 yrs.
Turtle Creek 4914 Creekside Dr 65 464 529 10 1985 5-40 yrs.
Telecom Technology Center 1,250 12,061 13,311 346 1991 5-40 yrs.
Tower Place 3,194 18,631 21,825 1,092 1988 5-40 yrs.
Westshore Square 1,130 5,173 6,303 116 1976 5-40 yrs.
REO Building 795 4,575 5,370 141 1983 5-40 yrs.
FT Myers, FL
Sunrise Office Center 422 3,539 3,961 107 1974 5-40 yrs.
----- ------ ------ -----
709,108 3,283,320 3,992,428 167,225
======= ========= ========= =======
</TABLE>
- --------
(1) These assets are pledged as collateral for a $5,580,000 first mortgage
loan.
(2) These assets are pledged as collateral for a $42,842,000 first mortgage
loan.
(3) These assets are pledged as collateral for an $47,011,000 first mortgage
loan.
(4) These assets are pledged as collateral for a $30,454,000 first mortgage
loan.
(5) These assets are pledged as collateral for a $4,769,000 first mortgage
loan.
(6) These assets are pledged as collateral for a $29,735,000 first mortgage
loan.
(7) These assets are pledged as collateral for a $8,605,000 first mortgage
loan.
(8) These assets are pledged as collateral for a $1,157,000 first mortgage
loan.
(9) These assets are pledged as collateral for a $1,721,000 first mortgage
loan.
(10) These assets are pledged as collateral for a $2,488,000 first mortgage
loan.
(11) These assets are pledged as collateral for a $3,371,000 first mortgage
loan.
(12) These assets are pledged as collateral for a $3,760,000 first mortgage
loan.
(13) These assets are pledged as collateral for a $1,187,000 first mortgage
loan.
(14) These assets are pledged as collateral for a $3,244,000 first mortgage
loan.
(15) These assets are pledged as collateral for a $61,268,000 first mortgage
loan.
(16) These assets are pledged as collateral for a $17,931,000 first mortgage
loan.
(17) Reflects land transferred to Airpark East - Hewlett Packard, Airpark East -
Inacom, Airpark East Building D and Airpark East-Simplex.
F-39
<PAGE>
(18) Reflects land transferred to Concourse Center 1 land in progress.
(19) Reflects land sale.
(20) Reflects land transferred to Situs 1 and Situs 2.
(21) Reflects land transferred to Red Oak.
(22) Reflect land transfers to Highwoods Centre and Sycamore.
(23) Transfer to land held for development.
(24) Reflects land transfer to Grassmere1.
(25) Reflects transfer of land to Lakeview Ridge II, Lakeview Ridge III, and
sale of 3.35 acres of land.
(26) Reflects transfer of land to Highwoods Common.
(27) Patewood III and IV are considered one property for encumbrance purposes.
(28) The aggregate cost for Federal Income Tax purposes was approximately
$3,227,000,000.
F-40
<PAGE>
HIGHWOODS REALTY LIMITED PARTNERSHIP
NOTE TO SCHEDULE III
(in thousands)
As of December 31, 1998, 1997 and 1996
A summary of activity for real estate and accumulated
depreciation is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Real Estate:
Balance at beginning of year ........................ $2,589,531 $1,376,638 $ 598,536
Additions:
Acquisitions, development and improvements ......... 1,428,472 1,216,249 779,256
Cost of real estate sold ............................ (25,575) (3,356) (1,154)
---------- ---------- ----------
Balance at close of year (a) .......................... $3,992,428 $2,589,531 $1,376,638
========== ========== ==========
Accumulated Depreciation:
Balance at beginning of year ........................ $ 85,602 $ 42,004 $ 21,452
Depreciation expense ................................ 83,158 43,732 20,562
Real estate sold .................................... (1,535) (134) (10)
---------- ---------- ----------
Balance at close of year (b) ........................ $ 167,225 $ 85,602 $ 42,004
========== ========== ==========
</TABLE>
- ----------
(a) Reconciliation of total cost to balance sheet caption at December 31, 1998,
1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Total per schedule III ...................... $3,992,428 $2,589,531 $1,376,638
Construction in progress exclusive
of land included in Schedule III .......... 189,465 95,387 28,841
Furniture, fixtures and equipment ........... 7,665 3,339 2,096
Property held for sale ...................... (129,167) -- --
---------- ---------- ----------
Total real estate assets at cost ............ $4,060,391 $2,688,257 $1,407,575
========== ========== ==========
</TABLE>
(b) Reconciliation of total accumulated depreciation to balance sheet caption at
December 31, 1998, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Total per schedule III ................................................. $167,225 $85,602 $42,004
Accumulated depreciation -- furniture, fixtures and equipment .......... 3,953 1,444 965
Property held for sale ................................................. (2,670) -- --
-------- ------- -------
Total accumulated depreciation ......................................... $168,508 $87,046 $42,969
======== ======= =======
</TABLE>
F-41
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment") is
made and entered into as of December 23, 1998, by and among HIGHWOODS
PROPERTIES, INC., a Maryland corporation ("Highwoods Properties"), HIGHWOODS
FINANCE, LLC, a Delaware limited liability company ("Highwoods Finance"),
HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina limited partnership
("Highwoods Realty"), HIGHWOODS SERVICES, INC., a North Carolina corporation
("Highwoods Services"), each of the Guarantors set forth on the signature page
hereto (collectively, the "Guarantors") and each of the lenders set forth on the
signature page hereto (collectively, the "Lenders").
W I T N E S S E T H:
WHEREAS, Highwoods Properties and the Lenders are parties to a certain
Credit Agreement dated as of July 3, 1998 (the "Credit Agreement"; defined terms
used herein without definition shall have the meaning ascribed to such terms in
the Credit Agreement) by and among Highwoods Properties, Highwoods Realty,
Highwoods Services (Highwoods Properties, Highwoods Realty and Highwoods
Services are hereinafter referred to individually as a "Borrower" and
collectively as the "Borrowers"), certain Subsidiaries of the Borrowers, the
Lenders party thereto, NationsBank, N.A., as Administrative Agent for the
Lenders (the "Administrative Agent"), First Union National Bank, as Syndication
Agent for the Lenders, Wells Fargo Bank, National Association, as Documentation
Agent for the Lenders and the institutions identified therein as Managing
Agents;
WHEREAS, Highwoods Finance was formed September 28, 1998 as a wholly
owned subsidiary of Highwoods Properties;
WHEREAS, Highwoods Finance executed that certain Joinder Agreement
dated as of October 19, 1998, pursuant to which Highwoods Finance became a
Credit Party under the Credit Agreement and a Guarantor for all purposes of the
Credit Agreement;
WHEREAS, the Borrowers have requested, and the Lenders have agreed, to
amend the provisions of the Credit Agreement in order to add Highwoods Finance
as a Borrower thereunder and to amend the definition of "Asset Disposition", all
as more particularly set forth below;
WHEREAS, two Subsidiaries executed Joinder Agreements on December 3,
1998, after the 30-day period required by Section 7.12 of the Credit Agreement,
and the Borrowers have requested that the Lenders, and the Lenders have agreed
to, acknowledge that the execution of such Joinder Agreements cured these Events
of Default to the Lenders' satisfaction, all as more particularly set forth
below;
WHEREAS, one subsidiary of a Guarantor executed a Joinder Agreement but
was not required to do so as it was not a Subsidiary under the Credit Agreement
and the Borrowers have
<PAGE>
requested that the Lenders, and the Lenders have agreed to, release such
subsidiary from the Credit Agreement, all as more particularly set forth below;
WHEREAS, the parties wish to enter into this First Amendment to reflect
such amendment, waiver and release;
NOW, THEREFORE, for and in consideration of the mutual covenants
contained herein and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
SECTION 1. Amendment to Credit Agreement. The Credit Agreement is
hereby amended as follows:
(a) Heading to Credit Agreement. The Credit Agreement is
hereby amended by deleting the introductory heading in its entirety and
substituting in lieu thereof the following:
THIS CREDIT AGREEMENT dated as of July 3, 1998 (as
amended, modified, restated or supplemented from time to time,
the "Credit Agreement"), is by and among HIGHWOODS REALTY
LIMITED PARTNERSHIP, a North Carolina limited partnership
("Highwoods Realty"), HIGHWOODS PROPERTIES, INC., a Maryland
corporation ("Highwoods Properties"), HIGHWOODS FINANCE, LLC,
a Delaware limited liability company ("Highwoods Finance") and
HIGHWOODS SERVICES, INC., a North Carolina corporation
("Highwoods Services") (Highwoods Realty, Highwoods
Properties, Highwoods Finance and Highwoods Services are
hereinafter referred to individually as a "Borrower" and
collectively as the "Borrowers"), certain Subsidiaries of the
Borrowers (such Subsidiaries are hereinafter referred to
individually as a "Guarantor" and collectively as the
"Guarantors"), the Lenders (as defined herein), NATIONSBANK,
N.A., as Administrative Agent for the Lenders (in such
capacity, the "Administrative Agent"), FIRST UNION NATIONAL
BANK, as Syndication Agent for the Lenders (in such capacity,
the "Syndication Agent"), WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Documentation Agent for the Lenders (in such
capacity, the "Documentation Agent") and the institutions
identified herein as Managing Agents.
(b) Definition of Asset Disposition. The Credit Agreement is
hereby amended by deleting the definition of "Asset Disposition" in its
entirety and substituting in lieu thereof the following:
"Asset Disposition" means the disposition of any assets
(including without limitation the Capital Stock of a
Subsidiary) of any Consolidated Party whether by sale, lease
(but excluding the lease of assets in the ordinary course of
business), transfer or otherwise to a Person other than a
Credit Party.
2
<PAGE>
(c) Definition of Change of Control. The Credit Agreement is
hereby amended by deleting clause (iii) of the definition of "Change of
Control" in its entirety and substituting in lieu thereof the
following:
(iii) Highwoods Properties shall fail to be the sole general
partner of Highwoods Realty or own a majority of the Capital
Stock of Highwoods Services or Highwoods Finance.
(d) Section 2.4(b). The Credit Agreement is hereby amended by
deleting subsection (i) of Section 2.4(b) in its entirety and
substituting in lieu thereof the following:
(i) Notices; Disbursement. Whenever one of more of the
Borrowers desires a Swingline Loan advance hereunder it shall
give written notice (or telephonice notice promptly confirmed
in writing) to the Swingline Lender not later than 11:00 A.M.
(Charlotte, North Carolina time) on the Business Day of the
requested Swingline Loan advance. Each such notice shall be
irrevocable and shall specify (A) that a Swingline Loan
advance is requested, (B) the date of the requested Swingline
Loan advance (which shall be a Business Day), (C) the
principal amount of the Swingline Loan advance requested, (D)
the purpose for which the requested Swingline Loan will be
used by the applicable Borrower and (E) that the
representations and warranties made by the Credit Parties in
any Credit Document are true and correct in all material
respects at and as if made on the date hereof except to the
extent they expressly relate to an earlier date. Each
Swingline Loan shall be made as a Base Rate Loan and shall
have such maturity date (which maturity date shall not be a
date more than three (3) Business Days from the date of
advance thereof) as the Swingline Lender and the applicable
Borrower shall agree upon receipt by the Swingline Lender of
any such notice from the applicable Borrower. The Swingline
Lender shall initiate the transfer of funds representing the
Swingline Loan advance to the applicable Borrower by 3:00 P.M.
(Charlotte, North Carolina time) on the Business Day of the
requested borrowing.
SECTION 2. Events of Default Cured to Satisfaction of Lenders. First
Geary Corp., a California corporation, and Highwoods/Interlachen Holdings, L.P.,
a Delaware limited partnership, both Subsidiaries, executed Joinder Agreements
after 30 days of becoming a Subsidiary in violation of Section 7.12 of the
Credit Agreement. The Lenders do hereby agree that the execution of such Joinder
Agreements cured such Events of Default to their satisfaction.
SECTION 3. Release of Guarantor. Center Court Partners, a Florida
general partnership ("Center Court"), erroneously executed that certain Joinder
Agreement dated as of August 10, 1998, pursuant to which Center Court became a
Credit Party under the Credit Agreement and a Guarantor for all purposes of the
Credit Agreement. Center Court is only 50% owned by Plaza Land Company, a
Florida corporation and a Guarantor, and is thus not a Subsidiary required to be
3
<PAGE>
a Guarantor under the Credit Agreement. The Lenders do hereby release Center
Court from its obligations under the Joinder Agreement the other Credit
Documents.
SECTION 4. Conditions Precedent to Effectiveness. This First Amendment
shall be effective on the date that the Administrative Agent has received each
of the following, each to be in form and substance satisfactory to the
Administrative Agent:
(a) this First Amendment duly executed by all of the parties hereto;
(b) a certificate from the Secretary of Highwoods Properties, as the
sole member of Highwoods Finance, regarding: (i) the articles of organization of
Highwoods Finance as certified as of a recent date by the Secretary of State of
the State of Delaware, (ii) certificates of good standing or existence or its
equivalent with respect to Highwoods Finance certified as of a recent date by
the appropriate Governmental Authorities of Delaware and each other jurisdiction
in which failure to so qualify and be in good standing could reasonably be
expected to have a Material Adverse Effect, (iii) all corporate action taken by
Highwoods Properties to authorize the execution, delivery and performance by
Highwoods Finance of the documents to which it is a party, and (iv) the
incumbency and specimen signatures of each of the officers of Highwoods
Properties authorized to execute and deliver this Amendment and other documents
on behalf of Highwoods Finance;
(c) replacement Notes, which will replace the existing Notes, duly
executed and delivered by each of the Borrowers; and
(d) an opinion (which shall cover among other things, authority,
legality, validity, binding effect and enforceability) reasonably satisfactory
to the Administrative Agent addressed to the Administrative Agent and the
Lenders, dated as of the date hereof, from legal counsel to the Borrowers;
SECTION 5. No Other Amendment or Waiver. Except for the amendments
expressly set forth above, the Credit Agreement shall remain unchanged and in
full force and effect.
SECTION 6. References to and Effect on the Credit Agreement. Each
reference in the Credit Agreement to "this Agreement," "hereunder," "hereof,"
"herein," or words of like import, shall mean and be a reference to the Credit
Agreement, including the Exhibits attached thereto, as amended by this First
Amendment and each reference to the Credit Agreement in any other document,
instrument or agreement executed or delivered in connection with the Credit
Agreement shall mean and be a reference to the Credit Agreement, including the
Exhibits attached thereto, as amended by this First Amendment. In addition, each
reference in the Credit Agreement or in any other document, instrument or
agreement executed or delivered in connection with the Credit Agreement to
"Borrower" or "Borrowers" shall be deemed to include a reference to Highwoods
Finance.
SECTION 7. Ratification of Agreement. Except as expressly amended
herein, all terms, covenants and conditions of the Credit Agreement and all
other Credit Documents shall remain
4
<PAGE>
in full force and effect. The parties hereto do expressly ratify and confirm the
Credit Agreement as amended herein.
SECTION 8. No Waiver, Etc. Except as set forth in Section 2 hereof, the
parties hereto hereby agree that nothing herein shall constitute a waiver by the
Lenders of any Default or Event of Default, whether known or unknown, which may
exist under the Credit Agreement.
SECTION 9. Binding Nature. This First Amendment shall be binding upon
and inure to the benefit of the parties hereto, their respective heirs,
successors, successors-in-titles, and assigns.
SECTION 10. Governing Law. This First Amendment shall be governed by,
and construed in accordance with, the laws of the State of North Carolina.
SECTION 11. Entire Understanding. This First Amendment sets forth the
entire understanding of the parties with respect to the matters set forth
herein, and shall supersede any prior negotiations or agreements, whether
written or oral, with respect thereto.
SECTION 12. Counterparts. This First Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts
and may be delivered by telecopier. Each counterpart so executed and delivered
shall be deemed an original and all of which taken together shall constitute but
one and the same instrument.
[Signatures Set Forth on Next Page]
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment through their authorized officers as of the date first above written.
BORROWERS:
HIGHWOODS PROPERTIES, INC.,
a Maryland corporation
By:____________________________________
Name:____________________________
Title:___________________________
HIGHWOODS FINANCE, LLC,
a Delaware limited liability company
By: Highwoods Properties, Inc.,
its sole member
By:____________________________________
Name:____________________________
Title:___________________________
HIGHWOODS REALTY LIMITED PARTNERSHIP,
a North Carolina limited partnership
By: Highwoods Properties, Inc.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
HIGHWOODS SERVICES, INC.,
a North Carolina corporation
By:____________________________________
Name:____________________________
Title:___________________________
<PAGE>
GUARANTORS:
HIGHWOODS/FLORIDA HOLDINGS, L.P.,
a Delaware limited partnership
By: Highwoods/Florida GP Corp.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
HIGHWOODS/TENNESSEE HOLDINGS, L.P.,
a Tennessee limited partnership
By: Highwoods/Tennessee Properties, Inc.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
SHOCKOE PLAZA INVESTORS, L.C.,
a Virginia limited liability company
By: Highwoods Realty Limited Partnership,
its sole manager
By: Highwoods Properties, Inc.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
RC ONE LLC,
a Maryland limited liability company
By: Highwoods Properties, Inc.,
its sole manager
By:____________________________________
Name:____________________________
Title:___________________________
<PAGE>
PINELLAS BAY VISTA PARTNERS, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
its sole general partner
By: Highwoods/Florida GP Corp.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
PINELLAS NORTHSIDE PARTNERS, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
its sole general partner
By: Highwoods/Florida GP Corp.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
PINELLAS PINEBROOK PARTNERS, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
its sole general partner
By: Highwoods/Florida GP Corp.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
<PAGE>
INTERSTATE BUSINESS PARK, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
its sole general partner
By: Highwoods/Florida GP Corp.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
DOWNTOWN CLEARWATER TOWER, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
its sole general partner
By: Highwoods/Florida GP Corp.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
BDBP, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
its sole general partner
By: Highwoods/Florida GP Corp.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
<PAGE>
CROSS BAYOU, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
its sole general partner
By: Highwoods/Florida GP Corp.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
SISBROS, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
its sole general partner
By: Highwoods/Florida GP Corp.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
SEVEN CRONDALL ASSOCIATES LLC,
a Maryland limited liability company
By: Highwoods Realty Limited Partnership,
its sole manager
By: Highwoods Properties, Inc.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
<PAGE>
EIGHT CRONDALL ASSOCIATES LLC,
a Maryland limited liability company
By: Highwoods Realty Limited Partnership,
its sole manager
By: Highwoods Properties, Inc.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
NINE CRONDALL ASSOCIATES LLC,
a Maryland limited liability company
By: Highwoods Realty Limited Partnership,
its sole manager
By: Highwoods Properties, Inc.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
9690 DEERECO ROAD LLC,
a Maryland limited liability company
By: Highwoods Realty Limited Partnership,
its sole manager
By: Highwoods Properties, Inc.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
<PAGE>
HPI TITLE AGENCY, LLC,
a North Carolina limited liability company
By: Highwoods Services, Inc.,
its sole manager
By:____________________________________
Name:____________________________
Title:___________________________
HIGHWOODS WELLNESS CENTER, LLC,
A North Carolina limited liability company
By: Highwoods Services, Inc.,
its sole manager
By:____________________________________
Name:____________________________
Title:___________________________
MARLEY CONTINENTAL HOMES OF KANSAS,
a Kansas general partnership
By: Highwoods Properties, Inc.,
its managing general partner
By:____________________________________
Name:____________________________
Title:___________________________
HIGHWOODS/INTERLACHEN HOLDINGS, L.P.,
a Delaware limited partnership
By: Highwoods/Florida Holdings, L.P.,
its sole general partner
By: Highwoods/Florida GP Corp.,
its sole general partner
By:____________________________________
Name:____________________________
Title:___________________________
<PAGE>
HIGHWOODS/FLORIDA GP CORP.,
a Delaware corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
HIGHWOODS/TENNESSEE PROPERTIES, INC.,
a Tennessee corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
PIKESVILLE SPORTSMAN'S CLUB, INC.,
a Maryland corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
SOUTHEAST REALTY OPTIONS CORP.,
a Delaware corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
5565 STERRETT PLACE, INC.,
a Maryland corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
ATRIUM ACQUISITION CORP.,
a Maryland corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
<PAGE>
ALAMEDA TOWERS DEVELOPMENT COMPANY,
a Missouri corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
THE BAY PLAZA COMPANIES, INC.,
a Florida company
By: _________________________________
Name: ____________________________
Title: _____________________________
BOARD OF TRADE REDEVELOPMENT CORPORATION,
a Missouri corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
CHALLENGER, INC.,
a Kansas corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
GUARDIAN MANAGEMENT, INC.,
a Kansas corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
NICHOLS PLAZA WEST, INC.,
a Missouri corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
<PAGE>
OZARK MOUNTAIN VILLAGE, INC.,
a Missouri corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
PLAZA LAND COMPANY,
a Florida company
By: _________________________________
Name: ____________________________
Title: _____________________________
SOMEDAY, INC.,
a Kansas corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
KC CONDOR, INC.,
a Missouri corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
J.C. NICHOLS REALTY COMPANY,
a Missouri company
By: _________________________________
Name: ____________________________
Title: _____________________________
1st GEARY CORP.,
a California corporation
By: _________________________________
Name: ____________________________
Title: _____________________________
<PAGE>
LENDERS:
NATIONSBANK, N.A.,
Individually in its capacity as a Lender
And in its capacity as Administrative Agent
By:____________________________________
Name:____________________________
Title:___________________________
FIRST UNION NATIONAL BANK
By:____________________________________
Name:____________________________
Title:___________________________
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By:____________________________________
Name:____________________________
Title:___________________________
BANK OF AMERICA NATIONAL TRUST
& SAVINGS ASSOCIATION
By:____________________________________
Name:____________________________
Title:___________________________
COMMERZBANK AG
By:____________________________________
Name:____________________________
Title:___________________________
WACHOVIA BANK, N.A.
By:____________________________________
Name:____________________________
Title:___________________________
<PAGE>
CENTURA BANK
By:____________________________________
Name:____________________________
Title:___________________________
PNC BANK, NATIONAL ASSOCIATION
By:____________________________________
Name:____________________________
Title:___________________________
FLEET NATIONAL BANK
By:____________________________________
Name:____________________________
Title:___________________________
AMSOUTH BANK
By:____________________________________
Name:____________________________
Title:___________________________
DRESDNER BANK AG, NEW YORK BRANCH
By:____________________________________
Name:____________________________
Title:___________________________
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLAND BRANCH
By:____________________________________
Name:____________________________
Title:___________________________
By:____________________________________
Name:____________________________
Title:___________________________
<PAGE>
MELLON BANK, N.A.
By:____________________________________
Name:____________________________
Title:___________________________
FIRSTRUST SAVINGS BANK
By:____________________________________
Name:____________________________
Title:___________________________
CREDIT LYONNAIS, NEW YORK BRANCH
By:____________________________________
Name:____________________________
Title:___________________________
BAYERISCHE HYPO-UND VEREINSBANK, AG
By:____________________________________
Name:____________________________
Title:___________________________
ERSTE BANK DER OESTERREICHISCHEN
SPARKASSEN AG
By:____________________________________
Name:____________________________
Title:___________________________
SECOND AMENDMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") effective
as of December 31, 1998 (the "Effective Date") and executed as of February 26,
1999 (the "Execution Date") to the Credit Agreement referenced below is by and
among HIGHWOODS PROPERTIES, INC., a Maryland corporation ("Highwoods
Properties"), HIGHWOODS FINANCE, LLC, a Delaware limited liability company
("Highwoods Finance"), HIGHWOODS REALTY LIMITED PARTNERSHIP, a North Carolina
limited partnership ("Highwoods Realty"), and HIGHWOODS SERVICES, INC., a North
Carolina corporation ("Highwoods Services") (Highwoods Properties, Highwoods
Finance, Highwoods Realty and Highwoods Services are hereinafter referred to
individually as a "Borrower" and collectively as the "Borrowers"), the
Subsidiaries of the Borrowers identified on the signature pages hereto (such
Subsidiaries are hereinafter referred to individually as a "Guarantor" and
collectively as the "Guarantors"), the lenders identified on the signature pages
hereto (the "Lenders") and NATIONSBANK, N.A., as Administrative Agent for the
Lenders (in such capacity, the "Administrative Agent").
W I T N E S S E T H
WHEREAS, a $600 million credit facility has been established in favor
of the Borrowers pursuant to the terms of that Credit Agreement dated as of July
3, 1998 (as amended and modified, the "Credit Agreement") among the Borrower,
the Guarantors, the Lenders, NationsBank, N.A., as Administrative Agent for the
Lenders (in such capacity, the "Administrative Agent"), First Union National
Bank, as Syndication Agent for the Lenders (in such capacity, the "Syndication
Agent"), Wells Fargo Bank, National Association, as Documentation Agent for the
Lenders (in such capacity, the "Documentation Agent"), and the institutions
identified therein as Managing Agents.
WHEREAS, the Borrower has requested certain modifications to the Credit
Agreement;
WHEREAS, such modifications require the consent of the Required
Lenders;
WHEREAS, the Required Lenders hereby consent to the requested
modifications on the terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. The Credit Agreement is amended in the following respects:
<PAGE>
1.1 The following definitions in Section 1.1 of the Credit Agreement
are amended and modified, or added, to read as follows:
"Applicable Percentage" means, for any day, the rate per annum
set forth below opposite the applicable Unsecured Long Term Debt Rating
then in effect, it being understood that the Applicable Percentage for
(i) Eurodollar Loans shall be the percentage set forth under column
"Applicable Percentage for Eurodollar Loans", (ii) Base Rate Loans
shall be the percentage set forth under the column "Applicable
Percentage for Base Rate Loans" and (iii) Letter of Credit Fee shall be
the percentage set forth under the column "Applicable Percentage for
Letter of Credit Fee."
<TABLE>
<CAPTION>
- ----------------- ---------------- -------------- --------------- ----------------- ------------------ ------------------
Applicable
Applicable Applicable Percentage for
Pricing Moody's Third Debt Percentage for Percentage Base Letter of Credit
Level S&P Rating Rating Rating Eurodollar Loans Rate Loans Fee
- ----------------- ---------------- -------------- --------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
I A- or higher A3 or higher A- /A3 0.95% 0.30% 0.95%
equivalent
or higher
- ----------------- ---------------- -------------- --------------- ----------------- ------------------ ------------------
II BBB+ Baa1 BB+/Baa1 1.00% 0.30% 1.00%
equivalent
- ----------------- ---------------- -------------- --------------- ----------------- ------------------ ------------------
III BBB Baa2 BBB/Baa2 1.10% 0.30% 1.10%
equivalent
- ----------------- ---------------- -------------- --------------- ----------------- ------------------ ------------------
IV BBB- Baa3 BBB-/Baa3 1.20% 0.40% 1.20%
equivalent
- ----------------- ---------------- -------------- --------------- ----------------- ------------------ ------------------
V BB+ or Ba1 or BB+/Ba1 1.80% 0.55% 1.80%
lower lower equivalent
- ----------------- ---------------- -------------- --------------- ----------------- ------------------ ------------------
</TABLE>
The Applicable Percentage shall be adjusted effective on the next
Business Day following any change in the Unsecured Long Term Debt
Rating. The Borrowers shall notify the Administrative Agent in writing
promptly after becoming aware of any change in the Unsecured Long Term
Debt Rating of Highwoods Properties.
"Budgeted Project Costs" means, with respect to Properties
Under Development, the budgeted cost of construction and final
completion of such Properties Under Development; provided that the
Budgeted Project Costs shall include projected operating deficits
through completion and the projected date of occupancy of eighty-five
percent (85%) of the gross leasable space; provided further that, with
respect to Properties Under Development by Minority Interest Entities,
the Budgeted Project Costs shall be the applicable Consolidated Party's
share of the budgeted costs of construction and final completion (based
on the greater of (x) the Minority Interest of such Consolidated Party
or (y) such Consolidated Party's obligation to provide funds to the
Minority Interest Entity, which could include, for example, completion
guaranties).
"Build To Suit Properties" means those Properties Under
Development which have been 100% leased to tenants and have projected
net operating income (based on projections approved by the
Administrative Agent in its discretion) during its first year after
final completion in an amount which results in a 9.75% annual rate of
return on all costs of construction of such Property Under Development,
including, without limitation, financing costs and operating deficits.
2
<PAGE>
"Derivative Exposure" means the maximum liability (including
costs, fees and expenses), based upon a liquidation or termination as
of the date of the applicable covenant compliance test, of any Person
under any interest rate swap, collar, cap or other interest rate
protection agreements, treasury locks, equity forward contracts,
foreign currency exchange agreements, commodity purchase or option
agreements or other interest or exchange rate or commodity price
hedging agreements.
"Guaranty Obligations" means, with respect to any Person,
without duplication, any obligations of such Person (other than
endorsements in the ordinary course of business of negotiable
instruments for deposit or collection) guaranteeing or intended to
guarantee any Indebtedness of any other Person in any manner, whether
direct or indirect, and including without limitation any obligation,
whether or not contingent, (i) to purchase any such Indebtedness or any
Property constituting security therefor, (ii) to advance or provide
funds or other support for the payment or purchase of any such
Indebtedness or to maintain working capital, solvency or other balance
sheet condition of such other Person (including without limitation keep
well agreements, maintenance agreements, comfort letters or similar
agreements or arrangements) for the benefit of any holder of
Indebtedness of such other Person, (iii) to lease or purchase Property,
securities or services primarily for the purpose of assuring the holder
of such Indebtedness, (iv) to guaranty the completion of any Properties
Under Development, whether or not specifically including costs
associated therewith or (v) to otherwise assure or hold harmless the
holder of such Indebtedness against loss in respect thereof. The amount
of any Guaranty Obligation hereunder shall (subject to any limitations
set forth therein) be deemed to be an amount equal to the outstanding
principal amount (or maximum principal amount, if larger) of the
Indebtedness in respect of which such Guaranty Obligation is made. It
is specifically understood and agreed that the Guaranty Obligations of
each Guarantor include any and all Obligations that such Guarantor may
have as a Borrower hereunder or under any of the other Credit
Documents.
"Indebtedness" of any Person, without duplication, means (a)
all obligations (whether direct or contingent and inclusive of all
costs and fees associated with any Derivative Exposure) of such Person
for borrowed money, (b) all obligations (whether direct or contingent
and inclusive of all costs and fees associated with any Derivative
Exposure) of such Person evidenced by bonds, debentures, notes or
similar instruments, or upon which interest payments are customarily
made, (c) all obligations (whether direct or contingent and inclusive
of all costs and fees associated with any Derivative Exposure) of such
Person under conditional sale or other title retention agreements
relating to Property purchased by such Person (other than customary
reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business), (d) all obligations
(whether direct or contingent and inclusive of all costs and fees
associated with any Derivative Exposure) of such Person issued or
assumed as the deferred purchase price of Property or services
purchased by such Person (other than trade debt incurred in the
ordinary course of business and due within six months of the incurrence
thereof) which would appear as liabilities on a balance sheet of such
Person, (e) all obligations (whether direct or contingent and inclusive
of all costs and fees associated with any Derivative Exposure) of such
Person under take-or-pay or similar arrangements or under commodities
agreements, (f) all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien on, or payable out of the
proceeds of production from, Property owned or acquired by such Person,
whether or not the obligations secured thereby have been assumed, (g)
all Guaranty Obligations of such Person, (h) the principal portion of
all obligations (whether direct or contingent and inclusive of all
costs and fees associated with any Derivative Exposure) of such Person
under Capital Leases, (i) all obligations (whether direct or contingent
and inclusive of all costs and fees
3
<PAGE>
associated with any Derivative Exposure) of such Person in respect of
interest rate swap, collar, cap or other interest rate protection
agreements, treasury locks, equity forward contracts, foreign currency
exchange agreements, commodity purchase or option agreements or other
interest or exchange rate or commodity price hedging agreements
(including, but not limited to, the Hedging Agreements), (j) all
obligations (whether direct or contingent and inclusive of all costs
and fees associated with any Derivative Exposure) of such Person to
repurchase any securities which repurchase obligation is related to the
issuance thereof, (k) the maximum amount of all standby letters of
credit issued or bankers' acceptances facilities created for the
account of such Person and, without duplication, all drafts drawn
thereunder (to the extent unreimbursed), (l) all preferred Capital
Stock issued by such Person and required by the terms thereof to be
redeemed, or for which mandatory sinking fund payments are due, by a
fixed date, (m) all other obligations (whether direct or contingent and
inclusive of all costs and fees associated with any Derivative
Exposure) of such Person under any arrangement or financing structure
classified as debt (for tax purposes) by any nationally recognized
rating agency, (n) the principal portion of all obligations (whether
direct or contingent and inclusive of all costs and fees associated
with any Derivative Exposure) of such Person under Synthetic Leases and
(o) the Indebtedness of any partnership or unincorporated joint venture
in which such Person is a general partner or a joint venturer.
"Interest Expense" means, for any period, the sum of (a)
interest expense (including the interest component under Capital Leases
and Synthetic Leases) of the Consolidated Parties on a consolidated
basis for such period, as determined in accordance with GAAP, plus (b)
an amount equal to the aggregate of interest expense (including the
interest component under Capital Leases and Synthetic Leases), as
determined in accordance with GAAP, of each Minority Interest Entity
multiplied by the respective Minority Interest of each such entity.
"Managing Agents" means Centura Bank, CommerzBank AG, PNC
Bank, National Association and Wachovia Bank, N.A.
"Minority Interest" means the percentage of the Capital Stock
or other equity interest owned by a Consolidated Party in a Minority
Interest Entity.
"Minority Interest Entity" means any corporation, partnership,
association, joint venture or other entity in each case which is not a
Consolidated Party and in which a Consolidated Party owns, directly or
indirectly, Capital Stock or any other equity interest.
"Net Income" means, for any period, the sum of (i) net income
(excluding extraordinary gains and losses and related tax effects
thereof) after taxes for such period of the Consolidated Parties on a
consolidated basis, as determined in accordance with GAAP, plus (ii) an
amount equal to that portion attributable to Highwoods Realty of the
line item "minority interests" for such period, as shown on the
consolidated income statements of the Consolidated Parties, plus (iii)
without duplication, an amount equal to the aggregate of net income
(excluding extraordinary gains and losses and related tax effects
thereof) after taxes for such period, as determined in accordance with
GAAP, of each Minority Interest Entity multiplied by the respective
Minority Interest of each such entity.
"Notice of Borrowing" means a written notice of borrowing in
substantially the form of Exhibit 2.1(b)(i), as required by Section
2.1(b)(i) or Section 2.4(b)(i) signed by a Responsible Officer.
4
<PAGE>
"Permitted Investments" means Investments which are (i) cash
and Cash Equivalents; (ii) Investments existing on the Closing Date and
set forth on Schedule 1.1(a); (iii) Investments by any Credit Party in
any Wholly Owned Subsidiary that is a Credit Party; (iv) Investments in
any Wholly Owned Subsidiary which is to become a Credit Party pursuant
to the terms of Section 7.12 so long as such Wholly Owned Subsidiary
becomes a Credit Party within the 30 day period required by Section
7.12; (v) Investments by any Credit Party in any Preferred Stock
Subsidiary or any wholly owned Subsidiary of a Preferred Stock
Subsidiary; (vi) Investments by any Credit Party in any Property owned
by such Credit Party and in any personal property incidental to such
Property; (vii) Investments in vehicles, furniture, fixtures and other
personal property including supplies and other similar inventory
purchased by any Credit Party and used in such Consolidated Party's
ordinary course of business; (viii) Investments permitted by Section
8.5; (ix) Investments by Highwoods Realty, Highwoods Properties or any
Wholly Owned Subsidiary that is a Credit Party in any Non-Wholly Owned
Subsidiary that is a Credit Party, provided that the Adjusted
Investment Value of such Investments does not exceed, in the aggregate
at any time outstanding, an amount equal to 15% of Adjusted Total
Assets less an amount equal to the percentage of Adjusted Total Assets
represented by the Adjusted Investment Value of Investments made
pursuant to clause (x) below; and (x) Investments in any Person that is
not a Consolidated Party provided that the Adjusted Investment Value of
such Investments does not exceed 10% of Adjusted Total Assets in the
aggregate at any one time outstanding.
"Properties Under Development" means Properties the primary
purpose of which is to be leased in the ordinary course of business and
on which a Credit Party has commenced construction of a building or
other improvements; provided that any such Property will no longer be
considered a Property Under Development when seventy-five percent (75%)
of the gross leasable space contained therein are occupied by tenants
under leases.
"Scheduled Funded Debt Payments" means, as of the end of each
fiscal quarter of the Consolidated Parties, the sum of (a) all
scheduled payments of principal on Funded Indebtedness for the
Consolidated Parties on a consolidated basis for the applicable period
ending on such date (including the principal component of payments due
on Capital Leases during the applicable period ending on such date)
plus (b) an amount equal to the aggregate of all scheduled payments of
principal on Funded Indebtedness for each Minority Interest Entity for
the applicable period ending on such date (including the principal
component of payments due on Capital Leases during the applicable
period ending on such date) multiplied by the respective Minority
Interest of each such entity; it being understood that Scheduled Funded
Debt Payments shall not include any balloon payments due on the
maturity date of Funded Indebtedness.
"Total Assets" means the sum of (i) total assets of the
Consolidated Parties on a consolidated basis, as determined in
accordance with GAAP, plus (ii) an amount equal to the aggregate of
total assets, as determined in accordance with GAAP, of each Minority
Interest Entity multiplied by the respective Minority Interest of each
such entities.
"Total Liabilities" means the sum of (i) total liabilities of
the Consolidated Parties on a consolidated basis, as determined in
accordance with GAAP, plus (ii) an amount equal to the aggregate of
total liabilities, as determined in accordance with GAAP, of each
Minority Interest Entity multiplied by the respective Minority Interest
of each such entity plus (iii) without duplication, the Indebtedness of
the Consolidated Parties on a consolidated basis plus (iv) without
duplication, the aggregate of Indebtedness of each Minority Interest
Entity multiplied by the respective Minority Interest of each such
entity.
5
<PAGE>
"Unencumbered Assets at Cost" means with respect to (a) all
Properties of Highwoods Properties, Highwoods Realty and any Wholly
Owned Subsidiary (i) that are operating and generate revenues from
third parties, (ii) in which at least 75% of the available space
therein is being leased and generating rent payments and (iii) that are
not subject to any Liens and (b) all Properties of Highwoods
Properties, Highwoods Realty and any Wholly Owned Subsidiary (i) that
are in the process of being developed, (ii) in which at least 75% of
the space to be available at such Property upon completion of
construction has been pre-leased and (iii) that are not subject to any
Liens the sum of (I) for all such Properties of the type referenced in
clause (a) and (b) above owned by Highwoods Properties, Highwoods
Realty and any Wholly Owned Subsidiary on the Closing Date, the
undepreciated cost of such Properties plus (II) for such Properties of
the type referenced in clause (a) and (b) above purchased after the
Closing Date, the lesser of (x) the actual cost of such Properties and
(y) the Adjusted NOI for such Properties for the twelve months prior to
its acquisition divided by ten percent (10%) plus (III) all cash and
Cash Equivalents of the Highwoods Properties, Highwoods Realty and any
Wholly Owned Subsidiary.
1.2 The first sentence of Section 2.1(b)(i) is amended to read as
follows:
(i) Notice of Borrowing. One or more of the Borrowers shall
request a Revolving Loan borrowing by delivery of a Notice of
Borrowing, together with the officer's certificate required by Section
5.2(e), to the Administrative Agent not later than 11:00 A.M.
(Charlotte, North Carolina time) on the Business Day prior to the date
of the requested borrowing in the case of Base Rate Loans, and on the
third Business Day prior to the date of the requested borrowing in the
case of Eurodollar Loans.
1.3 Section 2.2(a)is amended to read as follows:
(a) Competitive Loans. So long as Highwoods Realty maintains
an unsecured long term debt rating of at least BBB- from S&P and Baa3
from Moody's, subject to the terms and conditions hereof and in
reliance upon the representations and warranties set forth herein, one
or more of the Borrowers may, from time to time from January 1, 2000
until the Maturity Date, request and each Lender may, in its sole
discretion, agree to make, Competitive Loans in Dollars to one or more
of the Borrowers; provided, however, that (i) the aggregate principal
amount of outstanding Competitive Loans shall not at any time exceed
the lesser of (a) THREE HUNDRED MILLION DOLLARS ($300,000,000) and (b)
fifty percent (50%) of the Revolving Committed Amount (the "Competitive
Loan Maximum Amount"), and (ii) the sum of the aggregate principal
amount of outstanding Revolving Loans plus the aggregate principal
amount of outstanding Competitive Loans plus the aggregate principal
amount of outstanding Swingline Loans plus LOC Obligations outstanding
shall not at any time exceed the Revolving Committed Amount. Each
Competitive Loan shall be not less than $10,000,000 in the aggregate
and integral multiples of $1,000,000 in excess thereof (or the
remaining portion of the Competitive Loan Maximum Amount, if less).
1.4 The first sentence of Section 2.2(b) is amended to read as follows:
(b) Competitive Bid Requests. One or more of the Borrowers may
solicit Competitive Bids by delivery of a Competitive Bid Request
substantially in the form of Exhibit 2.2(b), together with the
officer's certificate required by Section 5.2(e), to the Administrative
Agent by 12:00 Noon (Charlotte, North Carolina time) on a Business Day
four (4) Business Days prior to the date of a requested Competitive
Loan borrowing.
6
<PAGE>
1.5 The first sentence of Section 2.3(b) is amended to read as follows:
(b) Notice and Reports. The request for the issuance of a
Letter of Credit shall be submitted by a Borrower to the Issuing Lender
at least five (5) Business Days prior to the requested date of issuance
and shall be accompanied by the officer's certificate required by
Section 5.2(e).
1.6 The first sentence of Section 2.4(b)(i) is amended to read as
follows:
(i) Notices; Disbursement. Whenever one or more of the
Borrowers desires a Swingline Loan advance hereunder it shall deliver a
Notice of Borrowing, together with the officer's certificate required
by Section 5.2(e), to the Swingline Lender not later than 11:00 A.M.
(Charlotte, North Carolina time) on the Business Day of the requested
Swingline Loan advance.
1.7 The second sentence of Section 3.2 is amended to read as follows:
Each such extension or conversion shall be effected by the
Borrowers by delivery of a Notice of Extension/Conversion, together
with the officer's certificate required by Section 5.2(e), to the
office of the Administrative Agent specified in specified in Schedule
2.1(a), or at such other office as the Administrative Agent may
designate in writing, prior to 11:00 A.M. (Charlotte, North Carolina
time) on the Business Day of, in the case of the conversion of a
Eurodollar Loan into a Base Rate Loan, and on the third Business Day
prior to, in the case of the extension of a Eurodollar Loan as, or
conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the
proposed extension or conversion, specifying the date of the proposed
extension or conversion and the Loans to be so extended or converted,
the types of Loans into which such Loans are to be converted.
1.8 Section 3.15(a) is amended by the addition of the following
sentence immediately after the fifth sentence thereof:
If the Administrative Agent fails to distribute such payment
to such Lenders on the day required by the foregoing sentence, the
Administrative Agent shall pay to such Lenders interest on the
undistributed amount from and including the day such amount was
required to be distributed to but excluding the date such amount is
distributed at a per annum rate equal to the Federal Funds Rate.
1.9 Subsections (e) and (f) of Section 5.2 of the Credit Agreement are
renumbered as subsections (f) and (g), and a new subsection (e) is added to
Section 5.2 of the Credit Agreement to read as follows:
(e) Officer's Certificates. Concurrent with the delivery of
the appropriate notice required pursuant to Section 5.2(a) above, the
Borrower shall have delivered a certificate of the chief financial
officer of the Principal Borrower substantially in the form of Exhibit
7.1(c), (i) demonstrating compliance with the financial covenants
contained in Section 7.11(a) and Section 7.11(b) by calculation thereof
after giving effect to the making of the requested Loan (and the
application of the proceeds thereof) or to the issuance of the
requested Letter of Credit, as the case may be, and (ii) stating that
no Default or Event of
7
<PAGE>
Default exists, or if any Default or Event of Default does exist,
specifying the nature and extent thereof and what action the Credit
Parties propose to take with respect thereto.
1.10 Clauses (iv) and (v) of Section 7.1(b) of the Credit Agreement are
renumbered as clausees (v) and (vi), and a new clause (iv) is added to Section
7.1(b) of the Credit Agreement to read as follows:
(iv) a projection of Asset Dispositions for the next fiscal
quarter for each Consolidated Party,
1.11 Section 7.1(c) of the Credit Agreement is amended to read as
follows:
(c) Officer's Certificate. At the time of delivery of the
financial statements provided for in Sections 7.1(a) and 7.1(b) above,
a certificate of the chief financial officer of the Principal Borrower
substantially in the form of Exhibit 7.1(c), (i) demonstrating
compliance, as of the end of each such fiscal period, with (A) the
financial covenants contained in Section 7.11, (B) the limitation on
Investments contained in Section 8.5 (and, correspondingly, the
limitations set forth in the definition of Permitted Investments), and
(C) the financial covenants contained in each of the indentures or
other agreements relating to any publicly issued debt securities of any
Consolidated Party, in each case by detailed calculation thereof (which
calculation shall be in form satisfactory to the Agent and which shall
include, among other things, an explanation of the methodology used in
such calculation and a breakdown of the components of such
calculation), (ii) stating that the Credit Parties were in compliance
with each of the covenants set forth in Sections 7 and 8 of the Credit
Agreement at all times during such fiscal period, and (iii) stating
that, as of the end of each such fiscal period, no Default or Event of
Default exists, or if any Default or Event of Default does exist,
specifying the nature and extent thereof and what action the Credit
Parties propose to take with respect thereto.
1.12 Subsections (d) through (j) of Section 7.1 of the Credit Agreement
are renumbered as subsections (e) through (k), and a new subsection (d) is added
to Section 7.1 to read as follows:
(d) Financial Projections. As soon as available, and in any
event within 45 days days after each fiscal quarter end (i) for each
fiscal quarter of the Consolidated Parties ending on or before December
31, 1999, a pro forma balance sheet and income statement of the
Consolidated Parties for each of the four succeeding fiscal quarters,
together with related pro forma consolidated and consolidating
statements of operations and retained earnings and of cash flows for
each such succeeding fiscal quarter and (ii) for each of the second and
fourth fiscal quarters of the Consolidated Parties ending subsequent to
December 31, 1999, (A) a pro forma balance sheet and income statement
of the Consolidated Parties for each of the eight succeeding fiscal
quarters, together with related pro forma consolidated and
consolidating statements of operations and retained earnings and of
cash flows for each such succeeding fiscal quarter and (B) a
certificate of the chief financial officer of the Principal Borrower
demonstrating compliance on a pro forma basis for each of the eight
succeeding fiscal quarters with (x) the financial covenants contained
in Section 7.11, (y) the limitation on Investments contained in Section
8.5 (and, correspondingly, the limitations set forth in the definition
of Permitted Investments), and (z) the financial covenants contained in
each of the indentures or other
8
<PAGE>
agreements relating to any publicly issued debt securities of any
Consolidated Party, in each case by detailed calculation thereof (which
calculations shall be in form satisfactory to the Agent and which shall
include, among other things, an explanation of the methodology used in
such calculations and a breakdown of the components of such
calculations).
1.13 Section 7.11 of the Credit Agreement is amended to read as
follows:
Section 7.11 Financial Covenants.
(a) Total Liabilities to Total Assets. At all times
during the periods set forth below, the ratio of (i) Total
Liabilities to (ii) Total Assets shall be less than or equal
to the ratio set forth opposite such period:
Effective Date through June 30, 2000 0.55 to 1.0
July 1, 2000 and thereafter 0.50 to 1.0
(b) Unencumbered Assets at Cost to Unsecured Debt. At
all times during the periods set forth below, the ratio of (i)
Unencumbered Assets at Cost to (ii) Unsecured Debt shall be
greater than or equal to the ratio set forth opposite such
period:
Effective Date through December 31, 1999 1.75 to 1.0
January 1, 2000 and thereafter 2.0 to 1.0
(c) Secured Debt to Total Assets. At all times, the
ratio of (i) Secured Debt to (ii) Total Assets shall be less
than or equal to 0.25 to 1.0.
(d) Interest Coverage Ratio. At all times, the
Interest Coverage Ratio shall be greater than 2.25 to 1.0.
(e) Fixed Charge Coverage Ratio. At all times the
Fixed Charge Coverage Ratio shall be greater than 1.75 to 1.0.
(f) Unsecured Debt Coverage Ratio. At all times, the
ratio of (i) for the twelve month period ending on the date of
determination, Adjusted NOI for the Properties that are not
subject to any Liens to (ii) for the twelve month period
ending on the date of determination, Interest Expense paid on
Unsecured Debt shall be greater than 2.25 to 1.0.
(g) Tangible Net Worth. At all times the Tangible Net
Worth shall be greater than or equal to the sum of
$1,779,000,000, increased on a cumulative basis as of the end
of each fiscal quarter of the Consolidated Parties, commencing
with the fiscal quarter ending June 30, 1998 by an amount
equal to 85% of the Net Cash Proceeds of any Equity Issuance
received by the Consolidated Parties subsequent to the Closing
Date.
9
<PAGE>
(h) Speculative Land to Total Assets. At all times,
the ratio of (i) the value at cost of all Speculative Land to
(ii) Total Assets shall be less than or equal to .10 to 1.0.
(i) Speculative Construction Ratio.
(i) At all times on or before December 31,
1999, the ratio of (A) the amount of potential square
footage in all Speculative Construction to (B) the
amount of square footage in all Properties of the
Consolidated Parties that have been fully completed
and are generating a positive cash flow on a stand
alone basis shall be less than or equal to 0.20 to
1.0.
(ii) At all times on or after January 1,
2000, the ratio of (i) the Budgeted Project Costs of
all Properties Under Development excluding Build To
Suit Properties to (ii) Total Assets shall be less
than or equal to 0.10 to 1.0.
(iii) At all times on or after January 1,
2000, the ratio of (i) the Budgeted Project Costs of
all Properties Under Development (including Build to
Suit Properties) to (ii) Total Assets shall be less
than or equal to 0.15 to 1.0.
(j) Investment in Properties other than For Lease
Office and Industrial Properties. The Credit Parties will not
permit any Consolidated Party to, directly or indirectly,
acquire, develop or otherwise make an Investment in any
properties other than for lease office and industrial
properties which in the aggregate shall exceed at any one time
during the periods set forth below an amount greater than the
amount set forth opposite such period:
Closing Date through December 31, 1999 15% of Total Assets
January 1, 2000 and thereafter 10% of Total Assets
(k) Restricted Payments. The Credit Parties will not
permit any Consolidated Party to, directly or indirectly,
declare, order, make or set apart any sum for or pay any
Restricted Payment, except the Credit Parties may make
distributions, in the aggregate, in an amount not to exceed
one hundred percent (100%) of Cash Available for Distribution.
1.14 Section 8.5 of the Credit Agreement is deleted in its entirety and
replaced with the following:
8.5 Intentionally Omitted
1.15 Section 8.7 of the Credit Agreement is deleted in its entirety and
replaced with the following:
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<PAGE>
8.7 Intentionally Omitted
1.16 All references in the Credit Agreement to Section 8.5 are amended
to refer to Section 7.11(j).
1.17 Exhibit 7.1(c) to the Credit Agreement is amended and restated in
its entirety as Exhibit 7.1(c) attached hereto.
2. Eakin & Smith, LLC, a Tennessee limited liability company, a
Subsidiary, executed a Joinder Agreement more than 30 days after becoming a
Subsidiary in violation of Section 7.12 of the Credit Agreement. The Lenders do
hereby agree that the execution of such Joinder Agreement cured such Event of
Default to their satisfaction. Further, the Lenders hereby waive all Events of
Default occurring on or prior to the Execution Date as a result of any
Additional Credit Party's failure to execute a Joinder Agreement within the
period required by Section 7.12; provided, however, that this waiver (1) is a
one time waiver and shall be effective only in the specific circumstances
provided for above and only for the purposes for which given and (2) does not
waive any Event of Default occurring after the Execution Date as a result of any
Person's failure to execute a Joinder Agreement within the period required by
Section 7.12.
3. This Amendment shall be effective on the Effective Date (except for
the amendment to the definition of "Applicable Percentage", which shall be
effective on the Execution Date) upon satisfaction of the following conditions:
(a) execution of this Amendment by the Credit Parties and the Required
Lenders;
(b) execution by the Credit Parties and the Administrative Agent of a
side letter agreement, in form and substance satisfactory to the
Administrative Agent, relating to the settlement of any liability, cost
or expense resulting from or associated in any way with the Purchase
Agreement dated August 28, 1997 among Highwoods Properties, UBS Limited
and Union Bank of Switzerland, London Branch, and the Forward Stock
Purchase Agreement dated August 28, 1997 between Highwoods Properties
and Union Bank of Switzerland, London Branch.
(c) receipt by the Administrative Agent of a certificate of the chief
financial officer of the Principal Borrower substantially in the form
of Exhibit 7.1(c) to the Credit Agreement (i) demonstrating compliance
as of the Effective Date with (A) the financial covenants contained in
Section 7.11, (B) the limitation on Investments contained in Section
8.5 (and, correspondingly, the limitations set forth in the definition
of Permitted Investments), and (C) the financial covenants contained in
each of the indentures or other agreements relating to any publicly
issued debt securities of any Consolidated Party, in each case by
detailed calculation thereof (which calculation shall be in form
satisfactory to the Agent and which shall include, among other things,
an explanation of the methodology used in such calculation and a
breakdown of the components of such calculation) and (ii) stating that,
as of the Execution Date (after giving effect to this Amendment), no
Default or Event of Default exists, or if any Default or Event of
Default does exist, specifying the nature and extent thereof and what
action the Credit Parties propose to take with respect thereto.
11
<PAGE>
(d) receipt by the Administrative Agent of legal opinions of counsel to
the Credit Parties relating to this Amendment; and
(e) receipt by the Administrative Agent of the following:
(i) Copies of resolutions of the Board of Directors
of each Credit Party approving and adopting the Credit
Documents to which it is a party, the transactions
contemplated therein and authorizing execution and delivery
thereof, certified by a secretary or assistant secretary of
such Credit Party to be true and correct and in force and
effect as of the Execution Date.
(ii) Copies of certificates of good standing,
existence or its equivalent with respect to each Credit Party
certified as of a recent date by the appropriate Governmental
Authorities of the state or other jurisdiction of
incorporation and each other jurisdiction in which the failure
to so qualify and be in good standing could reasonably be
expected to have a Material Adverse Effect.
(iii) An incumbency certificate of each Credit Party
certified by a secretary or assistant secretary to be true and
correct as of the Execution Date.
(iv) With respect to each Credit Party which
delivered its charter documents and bylaws (or their
equivalent) to the Administrative Agent on the Closing Date
pursuant to Section 5.1(b) of the Credit Agreement, an
officer's certificate for each such Credit Party dated as of
the Execution Date certifying that such charter documents and
bylaws (or their equivalent) have not been amended or modified
since the Closing Date and are true and correct copies of such
charter documents and bylaws as in effect on the Execution
Date.
(v) With respect to each Additional Credit Party, (A)
the charter documents (or their equivalent) for each such
Additional Credit Party, certified to be true and complete as
of a recent date by the appropriate Governmental Authority of
the state or other jurisdiction of its incorporation and
certified by a secretary or assistant secretary of such
Additional Credit Party to be true and correct as of the
Execution Date, and (B) a copy of the bylaws (or their
equivalent) of each such Additional Credit Party certified by
a secretary or assistant secretary of such Additional Credit
Party to be true and correct as of the Execution Date.
(d) receipt by each Lender of an amendment fee equal to 25 basis points
(0.25%) on such Lender's Revolving Commitment.
4. The Borrower hereby represents and warrants in connection herewith
that as of the date hereof (after giving effect hereto) that, as of the
Execution Date, (i) the representations and warranties set forth in Section 6 of
the Credit Agreement are true and correct in all material
12
<PAGE>
respects (except those which expressly relate to an earlier date), and (ii) no
Default or Event of Default exists under the Credit Agreement, as amended
hereby.
5. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (including Schedules and Exhibits) shall remain in full force
and effect.
6. The Borrower agrees to pay all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment, including without limitation the fees and expenses of Moore &
Van Allen, PLLC.
7. This Amendment may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original and it shall
not be necessary in making proof of this Amendment to produce or account for
more than one such counterpart.
8. This Amendment shall be deemed to be a contract made under, and for
all purposes shall be construed in accordance with, the laws of the State of
North Carolina.
9. To the extent that there is a conflict or inconsistency between any
provision of this Amendment, on the one hand, and any provision of any other
Credit Document, on the other hand, this Amendment shall control.
[Remainder of Page Intentionally Left Blank]
13
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Second Amendment to Credit Agreement to be duly executed and delivered
as of the date first above written.
BORROWERS: HIGHWOODS REALTY LIMITED PARTNERSHIP,
a North Carolina limited partnership
By: Highwoods Properties, Inc.,
general partner
By:
Name: Ronald P. Gibson
Title: President
HIGHWOODS PROPERTIES, INC.,
a Maryland corporation
By:
Name: Ronald P. Gibson
Title: President
HIGHWOODS SERVICES, INC.,
a North Carolina corporation
By:
Name: Ronald P. Gibson
Title: President
HIGHWOODS FINANCE, LLC,
a Delaware limited liability company
By: Highwoods Properties, Inc.,
its sole member-manager
By:
Name: Ronald P. Gibson
Title: President
<PAGE>
GUARANTORS: SOUTHEAST REALTY OPTIONS CORP.,
a Delaware corporation
By:
Name: Ronald P. Gibson
Title: President
HIGHWOODS/FLORIDA GP CORP.,
a Delaware corporation
By:
Name: Ronald P. Gibson
Title: President
HIGHWOODS/TENNESSEE PROPERTIES, INC.,
a Tennessee corporation
By:
Name: Ronald P. Gibson
Title: President
ATRIUM ACQUISITION CORP.,
a Maryland corporation
By:
Name: Ronald P. Gibson
Title: President
5565 STERRETT PLACE, INC.,
a Maryland corporation
By:
Name: Ronald P. Gibson
Title: President
PIKESVILLE SPORTSMAN'S CLUB, INC.,
a Maryland corporation
By:
Name: Ronald P. Gibson
Title: President
[Signatures continue]
<PAGE>
HIGHWOODS/FLORIDA HOLDINGS, L.P.,
a Delaware limited partnership
By: Highwoods/Florida GP Corp.,
general partner
By:
Name: Ronald P. Gibson
Title: President
HIGHWOODS/TENNESSEE HOLDINGS, L.P.,
a Tennessee limited partnership
By: Highwoods/Tennessee Properties, Inc.,
general partner
By:
Name: Ronald P. Gibson
Title: President
PINELLAS NORTHSIDE PARTNERS, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
its general partner
By: Highwoods/Florida GP Corp.,
its general partner
By:
Name: Ronald P. Gibson
Title: President
[Signatures continue]
<PAGE>
INTERSTATE BUSINESS PARK, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
general partner
By: Highwoods/Florida GP Corp.,
general partner
By:
Name: Ronald P. Gibson
Title: President
PINELLAS BAY VISTA PARTNERS, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
general partner
By: Highwoods/Florida GP Corp.,
general partner
By:
Name: Ronald P. Gibson
Title: President
PINELLAS PINEBROOK PARTNERS, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
general partner
By: Highwoods/Florida GP Corp.,
general partner
By:
Name: Ronald P. Gibson
Title: President
[Signatures continue]
<PAGE>
DOWNTOWN CLEARWATER TOWER, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
general partner
By: Highwoods/Florida GP Corp.,
general partner
By:
Name: Ronald P. Gibson
Title: President
BDBP, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
general partner
By: Highwoods/Florida GP Corp.,
general partner
By:
Name: Ronald P. Gibson
Title: President
CROSS BAYOU, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
general partner
By: Highwoods/Florida GP Corp.,
general partner
By:
Name: Ronald P. Gibson
Title: President
[Signatures continue]
<PAGE>
SISBROS, LTD.,
a Florida limited partnership
By: Highwoods/Florida Holdings, L.P.,
general partner
By: Highwoods/Florida GP Corp.,
general partner
By:
Name: Ronald P. Gibson
Title: President
SHOCKOE PLAZA INVESTORS, L.C.,
a Virginia limited liability company
By: Highwoods Realty Limited Partnership,
manager
By: Highwoods Properties, Inc.,
general partner
By:
Name: Ronald P. Gibson
Title: President
RC ONE LLC,
a Maryland limited liability company
By: Highwoods Services, Inc.,
the sole member-manager
By:
Name: Ronald P. Gibson
Title: President
[Signatures continue]
<PAGE>
SEVEN CRONDALL ASSOCIATES LLC,
a Maryland limited liability company
By: Highwoods Realty Limited Partnership,
the sole member-manager
By: Highwoods Properties, Inc.,
general partner
By:
Name: Ronald P. Gibson
Title: President
EIGHT CRONDALL ASSOCIATES LLC,
a Maryland limited liability company
By: Highwoods Realty Limited Partnership,
the sole member-manager
By: Highwoods Properties, Inc.,
general partner
By:
Name: Ronald P. Gibson
Title: President
NINE CRONDALL ASSOCIATES LLC,
a Maryland limited liability company
By: Highwoods Realty Limited Partnership,
the sole member-manager
By: Highwoods Properties, Inc.,
general partner
By:
Name: Ronald P. Gibson
Title: President
[Signatures continue]
<PAGE>
9690 DEERECO ROAD LLC
a Maryland limited liability company
By: Highwoods Realty Limited Partnership,
the sole member-manager
By: Highwoods Properties, Inc.,
general partner
By:
Name: Ronald P. Gibson
Title: President
HPI TITLE AGENCY, LLC
a North Carolina limited liability company
By: Highwoods Realty Limited Partnership,
the sole member-manager
By: Highwoods Properties, Inc.,
general partner
By:
Name: Ronald P. Gibson
Title: President
581 HIGHWOODS, L.P.,
a Delaware limited partnership
By: Highwoods/Florida Holdings, L.P.,
its general partner
By: Highwoods/Florida GP Corp.,
its general partner
By:
Name: Ronald P. Gibson
Title: President
[Signatures continue]
<PAGE>
HIGHWOODS DLF, LLC,
a Delaware limited liability company
By: Highwoods Realty Limited Partnership,
manager
By: Highwoods Properties, Inc.,
general partner
By:
Name: Ronald P. Gibson
Title: President
NICHOLS PLAZA WEST, INC.,
a Missouri corporation
By:
Name: Ronald P. Gibson
Title: President
OZARK MOUNTAIN VILLAGE, INC.,
a Missouri corporation
By:
Name: Ronald P. Gibson
Title: President
PLAZA LAND COMPANY,
a Florida company
By:
Name: Ronald P. Gibson
Title: President
BOARD OF TRADE REDEVELOPMENT CORPORATION,
a Missouri corporation
By:
Name: Ronald P. Gibson
Title: President
[Signatures continue]
<PAGE>
1st GEARY CORP.,
a California corporation
By:
Name: Ronald P. Gibson
Title: President
SOMEDAY, INC.,
a Kansas corporation
By:
Name: Ronald P. Gibson
Title: President
KC CONDOR, INC.,
a Missouri corporation
By:
Name: Ronald P. Gibson
Title: President
J.C. NICHOLS REALTY COMPANY,
a Missouri company
By:
Name: Ronald P. Gibson
Title: President
ALAMEDA TOWERS DEVELOPMENT COMPANY,
a Missouri corporation
By:
Name: Ronald P. Gibson
Title: President
CHALLENGER, INC.,
a Kansas corporation
By:
Name: Ronald P. Gibson
Title: President
[Signatures continue]
<PAGE>
GUARDIAN MANAGEMENT, INC.,
a Kansas corporation
By:
Name: Ronald P. Gibson
Title: President
HIGHWOODS WELLNESS CENTER, LLC,
a North Carolina limited liability company
By: Highwoods Services, Inc.,
the sole member-manager
By:
Name: Ronald P. Gibson
Title: President
HIGHWOODS/INTERLACHEN HOLDINGS, L.P.,
a Delaware limited partnership
By: Highwoods/Florida Holdings, L.P.,
its sole general partner
By: Highwoods/Florida GP Corp.,
its sole general partner
By:
Name: Ronald P. Gibson
Title: President
[Signatures continue]
<PAGE>
HIGHWOODS/TENNESSEE PROPERTIES, INC.,
a Tennessee corporation
By:
Name: Ronald P. Gibson
Title: President
EAKIN & SMITH, LLC,
a Tennessee limited liability company
By:
Name: W. Brian Reames
Title: Governor
By:
Name: Mike Harris
Title: Governor
By:
Name: Terry W. Smith
Title: Governor
[Signatures continue]
<PAGE>
MARLEY CONTINENTAL HOMES OF KANSAS,
a Kansas general partnership
By: Highwoods Realty Limited Partnership,
general partner
By: Highwoods Properties, Inc.,
general partner
By:
Name: Ronald P. Gibson
Title: President
[Signatures continue]
<PAGE>
LENDERS: NATIONSBANK, N.A.,
Individually in its capacity as a Lender
and in its capacity as Administrative Agent
By:
Name:
Title:
FIRST UNION NATIONAL BANK
By:
Name:
Title:
WELLS FARGO BANK, NATIONAL
ASSOCIATION
By:
Name:
Title:
COMMERZBANK AG
By:
Name:
Title:
WACHOVIA BANK, N.A.
By:
Name:
Title:
<PAGE>
CENTURA BANK
By:
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
By:
Name:
Title:
FLEET NATIONAL BANK
By:
Name:
Title:
AMSOUTH BANK
By:
Name:
Title:
DRESDNER BANK AG, NEW YORK BRANCH
By:
Name:
Title:
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
CAYMAN ISLAND BRANCH
By:
Name:
Title:
By:
Name:
Title:
<PAGE>
MELLON BANK, N.A.
By:
Name:
Title:
FIRSTRUST SAVINGS BANK
By:
Name:
Title:
CREDIT LYONNAIS, NEW YORK BRANCH
By:
Name:
Title:
BAYERISCHE HYPO-UND VEREINSBANK, AG
By:
Name:
Title:
ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG
By:
Name:
Title:
SOUTHTRUST BANK, N.A.
By:
Name:
Title:
<PAGE>
Exhibit 7.1(c)
to
Credit Agreement
FORM OF
OFFICER'S COMPLIANCE CERTIFICATE
For the fiscal quarter ended _________________, 19___/200___.
I, ______________________, chief financial officer of Highwoods
Properties, Inc., hereby certify that, with respect to that certain Credit
Agreement dated as of July 3, 1998 (as it may be amended, modified, extended or
restated from time to time, the "Credit Agreement"; all of the defined terms in
the Credit Agreement are incorporated herein by reference) among Highwoods
Realty Limited Partnership ("Highwoods Realty"), Highwoods Properties, Inc.
("Highwoods Properties"), Highwoods Finance LLC, a Delaware limited liability
company ("Highwoods Finance") and Highwoods Services, Inc. ("Highwoods
Services") (Highwoods Realty, Highwoods Properties, Highwoods Finance and
Highwoods Services are hereinafter referred to individually as a "Borrower" and
collectively as the "Borrowers") certain Subsidiaries of the Borrowers, the
Lenders party thereto, NationsBank, N.A., as Administrative Agent, First Union
National Bank, as Syndication Agent, Wells Fargo Bank, National Association, as
Documentation Agent and the institutions identified therein as Managing Agents:
a. Attached hereto as Schedule 1 are detailed calculations
(which calculations shall be in form satisfactory to the Administrative
Agent and which shall include, among other things, an explanation of
the methodology used in such calculation and a breakdown of the
components of such calculation) demonstrating compliance, as of the end
of the fiscal period referred to above, by the Consolidated Parties
with (A) the financial covenants contained in Section 7.11 of the
Credit Agreement, (B) the limitation on Investments contained in
Section 8.5 (and, correspondingly, the limitations set forth in the
definition of Permitted Investments), and (C) the financial covenants
contained in each of the indentures or other agreements relating to any
publicly issued debt securities of any Consolidated Party.
b. The Credit Parties were in compliance with each of the
covenants set forth in Sections 7 and 8 of the Credit Agreement at all
times during such fiscal period referred to above.
c. No Default or Event of Default has occurred under the
Credit Agreement(1).
<PAGE>
d. The quarterly financial statements which accompany this
certificate fairly present in all material respects the financial
condition of the Consolidated Parties and has been prepared in
accordance with GAAP, subject to changes resulting from normal year-end
audit adjustments.
This ______ day of ___________, ____.
HIGHWOODS PROPERTIES, INC.
By:
Name:
Title: Chief Financial Officer
- --------
(1) If a Default or Event of Default shall have occurred an explanation of such
Default or Event of Default shall be provided on a separate page together with
an explanation of the action taken or proposed to be taken by the Borrower with
respect thereto.
EXECUTIVE SUPPLEMENTAL EMPLOYMENT AGREEMENT
AGREEMENT by and between HIGHWOODS PROPERTIES, INC., a Maryland
corporation (the "Company"), and _____________ (the "Executive"), dated as of
the day of .
The Board of Directors of the Company (the "Board"), has determined that
it is in the best interests of the Company and its shareholders to ensure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined in
Section 1) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control and to encourage
the Executive's full attention and dedication to the Company currently and in
the event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) The "Effective Date" shall mean the first date during the
Change of Control Period (as defined in Section 1(c)) on which a Change of
Control occurs. Anything in this Agreement to the contrary notwithstanding, if a
Change of Control occurs and if the Executive's employment with the Company is
terminated prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment (i)
was at the request of a third party who has taken steps reasonably calculated to
effect the Change of Control or (ii) otherwise arose in connection with or
anticipation of the Change of Control, then for all purposes of this Agreement
the "Effective Date" shall mean the date immediately prior to the date of such
termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the third anniversary of such date;
provided, however, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"), the
Change of Control Period shall be automatically extended so as to terminate
three years from such Renewal Date, unless at least 60 days prior to the Renewal
Date the Company shall give notice to the Executive that the Change of Control
Period shall not be so extended.
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<PAGE>
(c) For purposes of this Agreement, a "Change of Control" shall
mean:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (a) the then outstanding
shares of common stock of the Company (the "Outstanding Company Common
Stock") or (b) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided,
however, that the following acquisitions shall not constitute a Change
of Control: (I) any acquisition directly from the Company (excluding an
acquisition by virtue of the exercise of a conversion privilege), (II)
any acquisition by the Company, (III) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (IV) any acquisition by
any corporation pursuant to a reorganization, merger or consolidation,
if, following such reorganization, merger or consolidation, the
conditions described in clauses (I), (II) and (III) of subsection (i) of
this Section 1(c) are satisfied; or
(ii) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless, following
such reorganization, merger or consolidation, (a) more than 60% of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation
and the combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same
proportions, as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may
be, (b) no Person (excluding the Company, any employee benefit plan (or
related trust) of the Company or such corporation
2
<PAGE>
resulting from such reorganization, merger or consolidation and any
Person beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 20% or more of the
Outstanding Company Common Stock or Outstanding Voting Securities, as
the case may be) beneficially owns, directly or indirectly, 20% or more
of, respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or consolidation
or the combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (c) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such reorganization,
merger or consolidation; or
(iv) Approval by the shareholders of the Company of (a) a
complete liquidation or dissolution of the Company or (b) the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation, with respect to which following
such sale or other disposition, (I) more than 60% of, respectively, the
then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the
case may be, (II) no Person (excluding the Company and any employee
benefit plan (or related trust) of the Company or such corporation and
any Person beneficially owning, immediately prior to such sale or other
disposition, directly or indirectly, 20% or more of the Outstanding
Company Common Stock or Outstanding Company Voting Securities, as the
case may be) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the
election of directors and (III) at least a majority of the members of
the board of directors of such corporation were members of the Incumbent
Board at the time of the execution of the initial agreement or action of
the Board providing for such sale or other disposition of assets of the
Company.
2. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, in accordance with the terms and provisions of this Agreement,
for the period commencing on the Effective Date and ending on the third
anniversary of such date (the "Employment Period").
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<PAGE>
3. TERMS OF EMPLOYMENT.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's
position (including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate in
all material respects with the most significant of those held, exercised
and assigned at any time during the 90-day period immediately preceding
the Effective Date and (B) the Executive's services shall be performed
at the location where the Executive was employed immediately preceding
the Effective Date or any office which is the headquarters of the
Company and is less than 35 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled,
the Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company and, to
the extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period, it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance
of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not hereafter be deemed
to interfere with the performance of the Executive's responsibilities to
the Company.
(b) Compensation.
(i) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"),
which shall be paid in equal installments on a monthly basis, at least
equal to twelve times the highest monthly base salary paid or payable to
the Executive by the Company and its affiliated companies in respect of
the twelve-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base
Salary shall be reviewed at least annually and shall be increased at any
time and from time to time as shall be substantially consistent with
increases in base salary generally awarded in the ordinary course of
business to other peer executives of the Company and its affiliated
companies. Any increase in Annual Base Salary shall not serve to limit
or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such
4
<PAGE>
increase and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash at least
equal to the average annualized (for any fiscal year consisting of less
than twelve full months or with respect to which the Executive has been
employed by the Company for less than twelve full months) bonus paid or
payable, including by reason of any deferral, to the Executive by the
Company and its affiliated companies in respect of the three fiscal
years immediately preceding the fiscal year in which the Effective Date
occurs (the "Recent Average Bonus"). Each such Annual Bonus shall be
paid no later than the end of the third month of the fiscal year next
following the fiscal year for which the Annual Bonus is awarded, unless
the Executive shall elect to defer the receipt of such Annual Bonus.
(iii) SPECIAL BONUS. In addition to Annual Base Salary and
Annual Bonus payable as hereinabove provided, if the Executive remains
employed with the Company and its affiliated companies through the first
anniversary of the Effective Date, the Company shall pay to the
Executive a special bonus (the "Special Bonus") in recognition of the
Executive's services during the crucial one-year transition period
following the Change of Control in cash equal to the sum of (A) the
Executive's Annual Base Salary and (B) the greater of (1) the Annual
Bonus paid or payable, including by reason of any deferral, to the
Executive (and annualized for any fiscal year consisting of less than
twelve full months or for which the Executive has been employed for less
than twelve full months) for the most recently completed fiscal year
during the Employment Period, if any, and (2) the Recent Average Bonus
(such greater amount shall be hereinafter referred to as the "Highest
Annual Bonus"). The Special Bonus shall be paid no later than 30 days
following the first anniversary of the Effective Date.
(iv) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and
programs applicable generally to other peer executives of the Company
and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities,
in each case, less favorable, in the aggregate, than the most favorable
of those provided by the Company and its affiliated companies for the
Executive under such plans, practices, policies and programs as in
effect at any time during the 90-day period immediately preceding the
Effective Date or if more favorable to the Executive, those provided
generally at any time after the Effective Date to other peer executives
of the Company and its affiliated companies.
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(v) WELFARE BENEFIT PLANS. During the Employment Period,
the Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the
Company and its affiliated companies (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee
life, group life, accidental death and travel accident insurance plans
and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for
the Executive at any time during the 90-day period immediately preceding
the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer
executives of the Company and its affiliated companies.
(vi) EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable
employment expenses incurred by the Executive in accordance with the
most favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at any time during the
90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vii) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits in accordance with the
most favorable plans, practices, programs and policies of the Company
and its affiliated companies in effect for the Executive at any time
during the 90-day period immediately preceding the Effective Date, or if
more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies.
(viii) OFFICE AND SUPPORT STAFF. During the Employment
Period, the Executive shall be entitled to an office or offices of a
size and with furnishings and other appointments, and to exclusive
personal secretarial and other assistance, at least equal to the most
favorable of the foregoing provided to the Executive by the Company and
its affiliated companies at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with respect to
other peer executives of the Company and its affiliated companies.
(ix) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable
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to the Executive, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
4. TERMINATION OF EMPLOYMENT.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 10(b) of its intention to terminate the Executive's employment. In such
event, the Executive's employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive (the "Disability
Effective Date"), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of the Executive's
duties. For purposes of this Agreement, "Disability" shall mean the absence of
the Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative (such agreement as to acceptability not to be
withheld unreasonably).
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean (i) a material breach by the Executive of the Executive's obligations
under Section 3(a) (other than as a result of incapacity due to physical or
mental illness) which is demonstrably willful and deliberate on the Executive's
part, which is committed in bad faith or without reasonable belief that such
breach is in the best interests of the Company and which is not remedied in a
reasonable period of time after receipt of written notice from the Company
specifying such breach or (ii) the conviction of the Executive of a felony
involving moral turpitude.
(c) Good Reason; Window Period. The Executive's employment may be
terminated (i) during the Employment Period by the Executive for Good Reason or
(ii) during the Window Period by the Executive without any reason. For purposes
of this Agreement, the "Window Period" shall mean the 90-day period immediately
following the first anniversary of the Effective Date. For purposes of this
Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirement), authority, duties or
responsibilities as contemplated by Section 3(a) or any other action by
the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given
by the Executive;
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(ii) any failure by the Company to comply with any of the
provisions of Section 3(b), other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at
any office or location other than that described in Section 3(a) (i)
(B);
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 9(c), provided that such successor has received at least ten
days' prior written notice from the Company or the Executive of the
requirements of Section 9(c).
For purposes of this Section 4(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive without any reason during the Window Period or for
Good Reason, shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 10(b). For purposes of this Agreement, a
"Notice of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated and (iii) if the Date of Termination (as defined below)
is other than the date of receipt of such notice, specifies the termination date
of such notice. The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a showing of
Good Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive during the Window Period or for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
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5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Good Reason or during the Window Period; Other than for
Cause, Death or Disability. If, during the Employment Period, the Company shall
terminate the Executive's employment other than for Cause or Disability or the
Executive shall terminate employment either for Good Reason or without any
reason during the Window Period:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the aggregate of
the following amounts:
(A) the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the Highest
Annual Bonus and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365
and (3) the Special Bonus, if due to the Executive
pursuant to Section 3(b)(iii), to the extent not
theretofore paid and (4) any compensation previously
deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation
pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2), (3) and
(4) shall be hereinafter referred to as the "Accrued
Obligations"); and
(B) the amount (such amount shall be hereinafter
referred to as the "Severance Amount") equal to the
product of (1) 2.99 and (2) the sum of (x) the Executive's
Annual Base Salary and (y) the Highest Annual Bonus;
provided, however, that if the Special Bonus has not been
paid to the Executive, such amount shall be increased by
the amount of the Special Bonus; and, provided further,
that such amount shall be reduced by the present value
(determined as provided in Section 280G(d)(4) of the
Internal Revenue Code of 1986, as amended (the "Code")) of
any other amount of severance relating to salary or bonus
continuation to be received by the Executive upon
termination of employment of the Executive under any
severance plan, policy or arrangement of the Company; and
(C) a separate lump-sum supplemental retirement
benefit (the amount of such benefit shall be hereinafter
referred to as the "Supplemental Retirement Amount") equal
to the difference between (1) the actuarial equivalent
(utilizing for this purpose the actuarial assumptions
utilized with respect to the Company's Retirement Plan (or
any successor plan thereto) (the "Retirement Plan") during
the 90-day period immediately preceding the Effective
Date) of the benefit payable under the Retirement Plan and
any supplemental and/or excess retirement plan of the
Company and its affiliated companies providing benefits
for the Executive (the "SERP") which the Executive would
receive if the Executive's employment continued at the
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compensation level provided for in Sections 3(b)(i) and
3(b)(ii) for the remainder of the Employment Period,
assuming for this purpose that all accrued benefits are
fully vested and that benefit accrual formulas are no less
advantageous to the Executive than those in effect during
the 90-day period immediately preceding the Effective
Date, and (2) the actuarial equivalent (utilizing for this
purpose the actuarial assumptions utilized with respect to
the Retirement Plan during the 90-day period immediately
preceding the Effective Date) of the Executive's actual
benefit (paid or payable), if any, under the Retirement
Plan and the SERP; and
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may provide, the
Company shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described in
Section 3(b)(v) if the Executive's employment had not been terminated in
accordance with the most favorable plans, practices, programs or
policies of the Company and its affiliated companies as in effect and
applicable generally to other peer executives and their families during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes re-employed with another employer and is eligible to
receive medical or other welfare benefits under another employer
provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility (such continuation of such benefits for
the applicable period herein set forth shall be hereinafter referred to
as "Welfare Benefit Continuation"). For purposes of determining
eligibility of the Executive for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the Employment
Period and to have retired on the last day of such period; and
(iii) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive and/or the
Executive's family any other amounts or benefits required to be paid or
provided or which the Executive and/or the Executive's family is
eligible to receive pursuant to this Agreement and under any plan,
program, policy or practice or contract or agreement of the Company and
its affiliated companies as in effect and applicable generally to other
peer executives of the Company and its affiliated companies and their
families during the 90-day period immediately preceding the Effective
Date or, if more favorable to the Executive, as in effect generally
thereafter with respect to other peer executives of the Company and its
affiliated companies and their families (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits").
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(iv) to the extent not otherwise provided for herein, all
options, warrants or other rights to acquire capital stock of the
Company held by or for the benefit of the Executive shall become fully
vested and eligible for immediate exercise and all other rights of the
Executive to receive cash compensation whether deferred or not
(including benefits under any Stock Appreciation Rights Plan or other
similar plan) shall becoming fully vested and the Executive shall become
entitled to payment thereof by the Company in a lump sum in cash within
30 days after the Date of Termination.
(b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for (i) payment of Accrued Obligations (which
shall be paid to the Executive's estate or beneficiary, as applicable, in a lump
sum in cash within 30 days of the Date of Termination) and the timely payment or
provision of the Welfare Benefit Continuation and Other Benefits (excluding, in
each case, Death Benefits (as defined below)) and (ii) payment to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination of an amount equal to the greater of (A) the
sum of the Severance Amount and the Supplemental Retirement Amount and (B) the
present value (determined as provided in Section 280G(d)(4) of the Code) of any
cash amount to be received by the Executive or the Executive's family as a death
benefit pursuant to the terms of any plan, policy or arrangement of the Company
and its affiliated companies, but not including any proceeds of life insurance
covering the Executive to the extent paid for directly or on a contributory
basis by the Executive (which shall be paid in any event as an Other Benefit)
(the benefits included in this clause (B) shall be hereinafter referred to as
the "Death Benefits").
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for (i) payment of Accrued Obligations (which shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination) and
the timely payment of provision of the Welfare Benefit Continuation and Other
Benefits (excluding, in each case, Disability Benefits, as defined below) and
(ii) payment to the Executive in a lump sum in cash within 30 days of the Date
of Termination of an amount equal to the greater of (A) the sum of the Severance
Amount and the Supplemental Retirement Amount and (B) the present value
(determined as provided in Section 280G(d)(4) of the Code) of any cash amount to
be received by the Executive as a disability benefit pursuant to the terms of
any plan, policy or arrangement of the Company and its affiliated companies, but
not including any proceeds of disability insurance covering the Executive to the
extent paid for directly or on a contributory basis by the Executive (which
shall be paid in any event as an Other Benefit) (the benefits included in this
clause (B) shall be hereinafter referred to as the "Disability Benefits").
(d) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive Annual Base Salary through the Date
of Termination plus the amount of any compensation previously deferred by the
Executive, in each case to the extent theretofore unpaid. If the Executive
terminates employment
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during the Employment Period, excluding a termination either for Good Reason or
without any reason during the Window Period, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
and the timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination.
(e) Non-exclusivity of Rights. Except as provided in Sections
5(a)(ii), 5(b) and 5(c), nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice of program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement.
6. FULL SETTLEMENT; RESOLUTION OF DISPUTES.
(a) The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement and, except as provided in Section
5(a)(ii), such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay promptly as incurred, to the full
extent permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome thereof)
by the Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and the
Executive (i) in the event of any termination of the Executive's employment by
the Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by the Executive, whether Good Reason existed, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made in
good faith, the Company shall pay all amounts, and provide all benefits, to the
Executive and/or the Executive's family or other beneficiaries, as the case may
be, that the Company would be required to pay or
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provide pursuant to Section 5(a) as though such termination were by the Company
without Cause, or by the Executive with Good Reason; provided, however, that the
Company shall not be required to pay any disputed amount pursuant to this
paragraph except upon receipt of an undertaking by or on behalf of the Executive
to repay all such amounts to which the Executive is ultimately adjudged by such
court not to be entitled.
7. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 7) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 7(c), all determinations
required to be made under this Section 7, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Ernst &
Young, LLP (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall furnish the Executive with a written opinion
that failure to report the Excise Tax on the Executive's applicable federal
income tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 7(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall
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determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 7(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such
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advance or with respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 7(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 7(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
8. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 8 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
9. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
15
<PAGE>
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
10. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604-1051
Attention: ______________
If to the Company: Highwoods Properties, Inc.
3100 Smoketree Court, Suite 600
Raleigh, North Carolina 27604-1051
Attention: Chairman of the Board of Directors
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
16
<PAGE>
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c)(i)-(v), shall not
be deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, prior to the Effective Date, may be terminated by either the Executive or
the Company at any time. Moreover, if prior to the Effective Date, the
Executive's employment with the Company terminates, then the Executive shall
have no further rights under this Agreement.
17
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
-------------------------
HIGHWOODS PROPERTIES, INC.
By:
-------------------
-------------------
[Title]
18
<PAGE>
FIRST AMENDMENT TO
------------------
EXECUTIVE SUPPLEMENTAL EMPLOYMENT AGREEMENT
-------------------------------------------
FIRST AMENDMENT TO AGREEMENT by and between Highwoods Properties, Inc.,
a Maryland corporation (the "Company") and ______________________________ (the
"Executive") dated as of ____________________.
WHEREAS, the Company and Executive entered into that Executive
Supplemental Employment Agreement dated as of ______________ (the "Agreement");
and
WHEREAS, the Board of Directors of the Company has approved as of the
date hereof this Amendment in furtherance of its obligations and undertakings in
compensating the Executive as stated in the Agreement;
NOW, THEREFORE, in order to accomplish such objectives, and for other
good and valuable consideration relating to the Executive's continued employment
with the Company or its affiliates, the parties hereto do hereby agree to amend
the Agreement as follows: Section 5 (a)(i) shall be amended by inserting the
following additional provision:
"(D) as additional cash compensation, an amount equal to _____ times the
difference in (x) the fair market value of the common shares of the
Company and the common units of Highwoods/Forsyth Limited Partnership (the
"Partnership") underlying stock options or unit options issued to the
Executive and unexercised on the date immediately preceding the Effective
Date and (y) the exercise price to the Executive of such stock options and
unit options, which such exercise price shall reflect the reduction
thereof attributable to Dividend Equivalent Rights issued to the Executive
under the 1997 Performance Award Plan and vested as of the Effective Date
(it being specifically agreed that this Section 5(a)(i)(D) shall be an
additional cash compensation amount and not in cancellation of or in lieu
of any rights or benefits the Executive might otherwise have under the
terms of any grant of stock options or unit options to Executive by the
Company or the Partnership, including, but not limited to, Executive's
rights to exercise such stock options or unit options); and"
All capitalized terms used herein and not otherwise defined shall have
the meanings assigned in the Plan. Except as modified herein, all covenants,
terms, and conditions of the Plan shall remain in full force and effect, which
covenants, terms and conditions are hereby ratified and affirmed.
Schedule of Subsidiaries of Highwoods Realty Limited Partnership
(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
(4) Highwoods Services, Inc., a North Carolina corporation
(5) Highwoods Finance LLC, a Delaware limited liability company
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 Nos. 333-39247, 333-51671-01, 333-51759 and 333-61913, and Form S-8
Nos. 333-12117, 333-29759, 333-29763 and 333-55901) and related Prospectuses of
Highwoods Properties, Inc. and in the Registration Statement (Form S-3 No.
333-51671) and related Prospectus of Highwoods Realty Limited Partnership of our
report dated February 16, 1999 (except for Note 15 as to which the date is March
15, 1999) with respect to the consolidated financial statements and schedule of
Highwoods Properties, Inc. included in the Annual Report (Form 10-K)
for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Raleigh, North Carolina
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 54,959
<SECURITIES> 0
<RECEIVABLES> 52,617
<ALLOWANCES> 1,688
<INVENTORY> 0
<CURRENT-ASSETS> 121,050
<PP&E> 4,060,391
<DEPRECIATION> 168,508
<TOTAL-ASSETS> 4,247,700
<CURRENT-LIABILITIES> 125,168
<BONDS> 1,906,216
0
384,997
<COMMON> 0
<OTHER-SE> 1,831,319
<TOTAL-LIABILITY-AND-EQUITY> 4,247,700
<SALES> 496,739
<TOTAL-REVENUES> 511,478
<CGS> 154,211
<TOTAL-COSTS> 245,608
<OTHER-EXPENSES> 20,776
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,959
<INCOME-PRETAX> 151,135
<INCOME-TAX> 0
<INCOME-CONTINUING> 155,135
<DISCONTINUED> 0
<EXTRAORDINARY> 387
<CHANGES> 0
<NET-INCOME> 120,656
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 1.85
</TABLE>
